Value Investing Veteran Lee Chae-won Warns of Semiconductor Peak in Korea

Lee Chae-won, chairman of Life Asset Management and a pillar of South Korean value investing, warns that the era of extreme semiconductor dominance in the domestic market is reaching its ceiling. Lee argues that the current market environment is shifting from a value-driven opportunity into a momentum-driven risk.

According to Lee, the semiconductor sector's concentrated influence cannot persist indefinitely. He points to Samsung Electronics as a primary example, noting that when the stock traded around 60,000 Korean won last year, it represented a "perfect value stock" that the market had overlooked. However, Lee asserts that investing after a fivefold surge is no longer value investing, but rather momentum investing. This shift suggests that the AI-driven rally has pushed prices beyond the realm of fundamental undervaluation.

The Burst of Suppressed Value

This volatility comes after decades of stagnation for the KOSPI. Lee, who entered the securities industry in 1988 and has spent 39 years practicing value investing, describes recent market swings as a "burst of long-suppressed value." He notes that the index only rose twofold over a 37-year period—climbing from 1,000 in 1988 to 2,300 in April of last year—before experiencing a rapid surge followed by a sharp 44% plunge over just 40 days.

Historically, the South Korean market has suffered from the "Korea discount," where domestic stocks trade at lower valuations than global peers due to poor corporate governance. Lee credits corporate law revisions introduced last year with halving this discount, as new protections have been established to shield investors from exploitative corporate mergers and splits.

Implications for the KOSPI

Lee’s pivot signals a potential broader rotation of capital. As one of the nation's most prominent first-generation value investors, his move away from high-growth semiconductors toward traditional low-PBR (price-to-book ratio) and low-PER (price-to-earnings ratio) stocks could redefine the composition of the KOSPI. If other institutional investors follow this lead, the market may see a resurgence in sectors that have remained dormant while AI stocks soared.

The Path to Full Recovery

While corporate law has addressed part of the valuation gap, Lee suggests that further hurdles remain. He attributes the remaining half of the "Korea discount" to punitive inheritance taxes, which can reach up to 60%. According to Lee, these taxes discourage major shareholders from supporting stock price increases, as higher valuations lead to larger tax burdens upon succession.

Investors are now watching to see if the market can sustain a transition toward a more balanced valuation model. The primary question remains whether legislative and tax reforms can continue to evolve to fully eliminate the structural discounts that have plagued Korean equities for nearly four decades.