South Korea is one of the most expensive stock markets in the world by some measures, trailing only Taiwan, the US and the Netherlands.
But the headline valuation that many look at, highlighted below, is skewed by Samsung Electronics and SK Hynix, whose surge on the back of the memory-chip boom has driven most of the index's gains.
World’s most expensive and cheapest markets
Source: Fidelity, Research Affiliates, data up to 31/07/26
Yet beyond those names, there are still value opportunities – so many that even a value-focused manager such as Joe Bauernfreund, who oversees the £1.3bn AVI Global trust, has built a growing allocation to ‘the expensive’ Korean market.
He said corporate governance reform, a wave of shareholder activism and a pickup in takeover activity have left a long tail of smaller, family-controlled companies trading on deep discounts to their underlying assets, largely untouched by the chip rally.
“Korea is a market that a lot of investors look very superficially, at the high level and they say: ‘Yeah, the Kospi has gone up a lot, I've missed the boat’. But beneath the surface, there's a lot more to the story, and that's really what gets us excited.”
Below, the managers explains where he sees opportunities in Korea and the best and worst calls of the past year.
Performance of fund against index and sector over 1yr
Source: FE Analytics
What’s the philosophy behind this trust?
We're coming at equity markets from the position that markets are oftentimes inefficient. We're particularly interested in companies that we think are mispriced due to lack of research, lack of liquidity and a lack of understanding.
We tend to go where we see very severe undervaluation and where we can identify catalysts to remedy that undervaluation. I'm particularly interested in situations where shareholder activism can unlock a lot of value.
Why should investors pick your fund?
I believe that if you're an active fund manager, then owning the biggest companies in an index and mirroring the index is not really what investors pay you for.
If you're a fundamental analyst and you're finding good value, then you should back that with conviction, rather than hide behind the diversification and own 100 holdings, for example.
Having conviction, having concentration, I think, leads to better outcomes over the mid- to long term.
Can diversification be bad?
We actually do get broad diversification in our portfolio, even with 30 names; it's just that the outcome will be very different to that of the broader indices.
If you compare us to a world index, we're going to be very underweight the US by definition, we're going to be underweight technology and we're going to be very overweight in Japan and in a market like Korea because we just see so many exciting opportunities there.
How are you positioned in Korea and where do you see opportunity there?
Samsung Electronics and SK Hynix make up roughly half the index and it started off with interest in the market because of the corporate governance reforms, copying a lot of what's happened in Japan over the past 10 years.
A lot of that money ended up going into Samsung and SK Hynix at a point when their business trajectory went stratospheric, and they benefited from the whole boom in memory prices.
But beneath the surface, the dozen or so smaller mid-cap companies we own really did nothing over the past year, at a point when the market as a whole did very well.
What we've seen over the past couple of months is a bit of a wobble in the memory names and the AI-related plays, and investors are starting to get much more excited about those small-cap names, which are massively undervalued.
You've got corporate governance reform, a lot of shareholder activism developing and corporate activity going on as well which is fuelling some of that value being unlocked.
What was the best call over the past 12 months?
We own Samsung C&T, which is a holding company that owns a stake in Samsung Electronics, along with a stake in a business called Samsung Biologics. It trades on a discount of 52-53% today.
It's a top-three investment for us and it's contributed over 3.5 percentage points to our performance over the year. We think a much more realistic discount is probably closer to 30% than it is to 50%.
And the worst?
We bought a stake in Universal Music Group via Vivendi, the holding company, on a discount of close to 40%. It's probably 50% today. The discount has widened and Universal Music's own share price has been weak, so it's been a drag on our performance.
We like Universal Music Group. We think it's a fantastic business, performing extremely well, and fundamentally very strong and attractive – it's undervalued by the market.
We also thought the Bolloré family [Vivendi’s controlling shareholder] having sold other assets in the group would be in a position to bid for the stake they didn't own as a way of getting hold of Universal Music. That catalyst hasn't unfolded yet but we haven't sold out – we've actually added a little. We still believe the 50% discount is unwarranted.
What do you do outside of fund management?
I have a 21-month-old granddaughter, so I'm spending a lot of time with her. My other passion is cycling, so any time that the weather allows, you'll find me on my bike.