Perspectives
21 February 2025
Few countries are as diversified or continue to attract as significant overseas investment as South Korea, which has risen from being one of the poorest countries in the world to one of the richest.1,2
Having grown its economy by more than six per cent a year between 1970 and 20223 and built out its export-oriented manufacturing sector over the past 20 years, the fourth largest economy in Asia has become a global leader in areas as diverse as high-tech manufacturing, consumer electronics, automotive and shipbuilding.
South Korea’s ascent to global prominence has lately expanded to include its ‘K-wave’ cultural influence, which includes everything from pop culture to gaming and cuisine and sees it wield a unique form of soft power.
Economic growth has moderated in recent years, with structural challenges such as stagnating labour productivity, an ageing population, weak industrial innovation starting to bite, and recent political developments adding additional complexity. However, the home of the ‘Miracle on the Han River’ has overcome significant challenges before.
Springboarding off the economy’s underlying strengths – including a highly educated workforce, high levels of investment in research and development, world-class high-tech industries and its export-orientation – the government is attempting to increase the country’s attraction as a destination for foreign investment by stimulating new and emerging industries.
The most topical of these is artificial intelligence (AI), in which South Korea is set to invest $US7 billion by 2027 as part of efforts to position the nation as one of the top three countries in AI technology by the end of this decade.4,5
Together with new investment to meet the country’s 2050 net zero ambition6 and the growing healthcare needs of an ageing population, along with reforms to the public and private equity markets, this opens up new opportunities for investors seeking growth in this dynamic market.
Macquarie established a presence in Korea in 2000 with five employees and has since grown into a leading financial institution employing over 150 people.7 Today, it supports clients with products and services across asset management, equities, commodities, asset finance, advisory and fund sales.
One of the first foreign infrastructure asset managers to enter Korea, Macquarie is also one of the largest foreign infrastructure asset managers in the country. Through a focus on the major investment themes of digitalisation, decarbonisation and demographic change, it supports Korea’s sustainable growth and market development.
Providing support to institutional clients, the Macquarie Equities Research team covers over 80 stocks accounting for approximately 74 per cent of the market cap of the KOSPI,8 with a focus on innovative technology, energy transition, AI, healthcare, and Korea’s ‘Value-Up Program’.
The Macquarie Group Foundation supports local communities and runs initiatives to increase access to education and mentorship for college students through the Korea Youth Leaders Program.9
Among the world’s most technologically advanced and digitally connected countries, South Korea is a top exporter of both consumer electronics and the chips that power them. Outbound shipments of semiconductors hit a record monthly high of $US13.6 billion in September 2024, a year-on-year increase of 37 per cent.10 With future growth in AI, robotics and autonomous tech set to drive further demand.
“To position itself for future growth, South Korea is looking to both drive and benefit from AI innovation and capitalise on the resulting demand for advanced semiconductor manufacturing,” says Eric Kim, South Korea Country Head for Macquarie Group, and Head of Macquarie Asset Management Real Assets for North Asia.
The national government is increasing support for the sector through expanded tax incentives and financial support from the state-run Korea Development Bank, helping industry players to re-shore their manufacturing facilities. Domestic chip-making giants Samsung Electronics and SK Hynix are themselves investing KRW500 trillion ($US230 billion) and KRW122 trillion ($US91 billion) in chip manufacturing, respectively.11
State support also extends to addressing talent shortages. It is making efforts to attract skilled workers in high-tech industries from overseas and investing in the local workforce by enhancing benefits for experienced engineers and increasing enrolment quotas for semiconductor programs at universities.12
“South Korea is making a significant push to enhance the resilience and competitiveness of its semiconductor industry. With substantial investments, the country is working to strengthen its position globally," says Jung-Gyu Song, Representative Director of Macquarie Finance Korea, part of the Commodities and Global Markets business. "This concerted effort includes advances in manufacturing technology, particularly for high-performance chips used in AI and 5G, ensuring South Korea remains a key player in the evolving space."
AI will have a knock-on effect across industries, from data centres to fibre networks, and these will form the backbone of our future economy, unlocking new opportunities and driving long-term growth.”
Eric Kim
South Korea Country Head, Macquarie Group
Head, Macquarie Asset Management, Real Assets, North Asia
As the use cases for AI increase, so too does demand for greater data centre capacity, which is already experiencing double-digit growth13 driven by the widespread adoption of cloud computing, continued growth of e-commerce and surging data consumption among consumers. Existing market capacity is expected to roughly double to around 2 GW in 2029, an annual increase of almost 13 per cent.14
“AI will have a knock-on effect across industries, from data centres to fibre networks, and these will form the backbone of our future economy, unlocking new opportunities and driving long-term growth,” says Kim. “As demand for data centres and digital infrastructure continues to rise, Macquarie is investing strategically on behalf of our clients to meet this need.”
Recognising the long-term potential of this sector, Macquarie Asset Management – a leading investor in digital infrastructure globally – recently announced its acquisition of Hanam Data Centre, via the Macquarie Korea Infrastructure Fund (MKIF). Hanam is a hyperscale, tier-3 colocation data centre with a total capacity of 40 MW and a target load of 25.44 MW.
Macquarie Asset Management, via Macquarie Korea Infrastructure Fund, has invested in the Hanam Data Centre, located in the Greater Seoul Area of South Korea.
South Korea’s energy transition is an inevitable path. Continuous structural growth is happening, even if it may slow at times.”
Chan Hwang
Head, Korea Equities
Macquarie Capital
Growing demand for AI and data-driven industries will add to South Korea’s electricity needs, placing additional pressure on power generation and transmission infrastructure. Efforts to future-proof the grid to manage this run in parallel with those to upgrade it to support the country’s decarbonisation ambitions, which include a reduction in greenhouse gas emissions of 40 per cent from 2018 levels by 203015 and carbon neutrality by 2050.16
“South Korea’s energy transition is an inevitable path,” says Chan Hwang, Head of Korea Equities in Macquarie Capital. “Continuous structural growth is happening, even if it may slow at times.” To support these plans, the government recently pledged KRW420 trillion ($US313 billion) from the state budget for green financing.17 Sectors expected to benefit include renewable energy, particularly solar and offshore wind, natural gas, and newer forms of energy like hydrogen.18
While the outlook is positive, challenges remain. In 2023, renewable energy generation accounted for less than 10 per cent of the country's power generation mix, significantly lower than both regional and international peers.19 To achieve its net zero goals, South Korea will need to attract more investment into clean energy projects.
As an early mover in the country’s clean energy infrastructure, Macquarie has been supporting the growth of renewable energy in the country since 2011 – including investing in a solar platform with total operating and development capacity in excess of 500 MW, with the goal of expanding to 1 GW over the next three to five years.
Primarily driven by an ageing population – South Korea is on the cusp of becoming a super-aged society, where over 20 per cent of the population is over 6520 – the country’s healthcare sector is also expected to require significant investment in future years.
Per capita healthcare spending on South Koreans aged over 65 is more than four times that of those under 65,21 driving up total health expenditure as a share of GDP by over 5 percentage points by 2060.22 Forecasts predict that the market for products and services aimed at the older demographic will be worth KRW168 trillion ($US128 billion) by 2030, more than doubling from KRW73 trillion in 2020.23
“An increasingly elderly population will require upgrades to our national health and social care infrastructure, as well as to support the increased demand for pharmaceuticals products,” notes Hwang.
In response to these needs, Macquarie Asset Management’s private equity fund acquired a South Korea-based pharmaceutical contract development and manufacturing organisation, Genuone Sciences. This investment focuses on small-molecule drug research and development, high-quality large-scale production, and other advanced healthcare solutions.
“To support an ageing population, innovation in drug development and efficient manufacturing processes will be key,” says Hwang. “Investments in these areas help meet immediate needs, while strengthening the sector’s capability to navigate future challenges, ensuring sustainable growth.”
Macquarie Asset Management, through Macquarie Korea Opportunities Fund 6, has invested in pharmaceutical consignment production development company Genuone Sciences.
Macquarie has over 40 investment assets in Korea, which collectively employ over 10,000 people.24 These are made via Macquarie Asset Management’s Macquarie Korea Infrastructure Fund (MKIF), Macquarie Korea Opportunities Fund (MKOF) and Korea Private Concession Fund (KPCF).
A key export industry and source of influential ‘soft power’, ‘K-wave’ – the rise in the global popularity of the country’s culture – includes everything from music (‘K-pop’) and movies (‘K-dramas’) to tourism (‘K-tourism’), skincare and cosmetics (‘K-beauty’) and its cuisine (‘K-food’).
The global K-pop events market alone was valued at $US8.1 billion in 2021 and is growing at a compound annual growth rate (CAGR) of 7.3 per cent, with projections that it will reach $US20 billion by 2031.25
“Global demand for Korean pop culture and entertainment has seen enormous growth since the 1990s, increased international interest in our exports and grown inward tourism,” comments Hwang. “It is an important economic asset for the country and continues to create opportunities for investors looking to tap into a fairly unique and growing market.”
South Korea is an open and resilient market. With government plans to expand the country’s inherent dynamism, we see potential for investors in a number of areas.”
Eric Kim
South Korea Country Head, Macquarie Group
Head, Macquarie Asset Management, Real Assets, North Asia
South Korean public companies offer strong growth potential with the country’s major stock market index, the Korea Composite Stock Price Index (KOSPI), trading at a discount compared to regional and global competitors. To address the so-called ‘Korea Discount’ and unlock the index’s potential, South Korea's Financial Services Commission launched the ‘Corporate Value-Up Program’, which aims to improve corporate returns by enhancing stakeholder value, revising dividend and inheritance taxes, and strengthening corporate governance.26
“Based on price-to-earnings ratio, the KOSPI trades at about a 40 per cent discount when compared to regional and global comparative indices,” says Hwang. Reforms, set to roll out gradually, are expected to make K-equities more attractive to institutional investors.
Sectors such as automotive and banking are tipped to be key beneficiaries. Auto manufacturers with strong cash flows may offer dividends, while lenders with robust financials and shareholder-friendly policies present attractive investment openings.27 As changes take hold, new opportunities are likely to emerge. “How the program unfolds in the coming year or so will define its success,” adds Hwang.
Meanwhile, private equity has been trending upwards. As of 2023, there are over 1,100 funds registered in South Korea, managing a total equity of KRW136 trillion ($US10 trillion).28 Private equity firms are targeting high-growth sectors and seeking to support companies in realising their full potential.
With a wealth of opportunities being created by South Korea across multiple sectors, both established and emerging, Kim noted: “There’s a huge amount of opportunity on the horizon here. South Korea is an open and resilient market, and is already making a significant contribution globally. With government plans to expand the country’s inherent dynamism, we see potential for investors in a number of areas.”
