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The market cheered in early 2024 when President Yoon Suk Yeol announced his intention to implement the Corporate Value-up Program, a scheme aimed at boosting Korea's "undervalued" stock market. However, the early enthusiasm quickly gave way to external challenges, stalling any sustained growth.

According to market tracker TradingView, the benchmark KOSPI has seen about a 2.6 percent decrease this year to date. The performance is sluggish compared to major economies, with only a few, such as China, Mexico and Russia, performing worse.

"Did you know that if the KOSPI index had grown in line with Korea's gross domestic product (GDP) over the past 20 years, it would now be over 6,000? Calling it undervalued is almost an understatement," said Park Yoo-kyung, head of emerging markets economies at APG Asset Management.

Park made these remarks on Thursday at a Financial Supervisory Service (FSS) meeting with institutional investors, where she represented a Dutch pension provider.

While short-term factors like the U.S. presidential election and a potential recession have weighed down not only the Korean but also broader Asian markets, the Korea discount has been a persistent, long-term issue.

Park noted that from 1993 to 2023, U.S. GDP quadrupled, while the S&P 500 increased tenfold. By comparison, Korea's GDP increased sevenfold during the same period, but the KOSPI only tripled.

This sluggish performance caused the proportion of Korean stocks in the MSCI Emerging Markets Index to decline from 17 percent in 2004 to 13 percent today, while Taiwanese and Indian stocks rose from 12 percent and 5 percent, respectively, to 19 percent.

Market observers believe that low expected returns, despite high investment risks, have caused both foreign and retail investors to shy away from the market. This is partly due to the export-driven nature of Korea's economy, which makes the stock market particularly vulnerable to external uncertainties.

Additionally, the market suffers from a noticeable lack of emerging innovative companies. The Bank of Korea noted in its May report that "the majority of top market capitalization companies in Korea are still dominated by large manufacturing corporations established before the 1990s, with little change in this trend."

Compounding these challenges is the lack of transparency in corporate governance, which the government has identified as a major issue. Majority shareholders, particularly family-owned conglomerates, maintain tight control, leaving minority shareholders with insufficient protections. To address this and stimulate investment, the government launched the Corporate Value-up Program in February.

As part of the effort, the government plans to launch the Value-up Index in the fourth quarter. This index will feature companies that have demonstrated improvements in their valuations and strengthened corporate governance practices.

However, industry participation has been low. Of the 2,595 companies listed on the KOSPI and the secondary Kosdaq, only 14 have made related disclosures so far, with most being financial institutions.

Amar Gill, secretary general of the Asian Corporate Governance Association, also commented to the FSS that while the launch of the Corporate Value-up Program is a step in the right direction, whether it can address the Korea discount remains uncertain.