Phil Clifton, a well-known investor and protégé of Michael Burry, the real-life inspiration behind the film "The Big Short," has warned that cheap South Korean stocks conceal a trap: much of their value is often out of reach for minority shareholders.
Clifton is the founder of Pomerium Capital Management LLC in Cupertino, California. During trips to South Korea and Japan in August, he met with roughly 20 companies. In a letter to investors dated September 29, he wrote that the trip convinced him investing in South Korea "requires extra caution and close attention to management incentives."
South Korea's Stock Market: A "Capitalist Paradise" at First Glance, but Interests Are Often Misaligned
Clifton wrote in the letter: "At first glance, the South Korean stock market looks like a capitalist paradise," filled with companies boasting high profit margins and steady growth. But he noted that the interests of shareholders and corporate operators are often misaligned.
He said many South Korean companies trade at significant valuation discounts relative to global peers, but this excess value is often difficult for minority shareholders to access, especially in companies where founding families retain considerable control.
Clifton was the last portfolio manager at Scion Asset Management besides Burry. Burry shut down the hedge fund in November 2025. It is known that Burry rose to fame by shorting the U.S. subprime mortgage market before the 2008 financial crisis, which also made him the prototype for the protagonist of the film "The Big Short." Reports say Burry once recommended Clifton to clients, calling him a brilliant young investor and an outstanding thinker. Clifton founded Pomerium in January of this year.
Inheritance and Gift Tax Incentives Push Controlling Families to Suppress Share Prices
Clifton blamed South Korea's inheritance and gift taxes, which in some cases reach as high as 60%, with listed company equity also taxed at market value. This gives controlling families an incentive to suppress share prices by hoarding cash, investing in unrelated businesses, and paying little or no dividends.
He said: "Shares of such companies are effectively perpetual bonds with no coupon and no return of principal, becoming a 'value trap'—no matter how well the underlying business performs, the share price stays flat."
In recent years, as the South Korean government pushes corporate governance reform to boost shareholder returns, especially targeting family-controlled chaebols, South Korea has attracted more and more global investors. Some investors are optimistic that these efforts could drive a re-rating of the South Korean stock market.
The South Korean stock market has long been dragged down by the so-called "Korea discount," and similar reforms once drove gains in neighboring Japan's stock market. This reform push, combined with South Korea's key position in the global artificial intelligence supply chain, helped the KOSPI index rise more than 100% this year and reach a high in June, after which the rally gradually faded as doubts about AI returns intensified.
Japan's Stock Market More Favored: Discount Has Not Fully Disappeared
The Japanese market made Clifton more optimistic. He said that until recently, the Japanese market was full of severely undervalued companies, but efforts by exchanges and regulators to address valuation discounts have been quite successful.
He wrote: "Fortunately, Japan's valuation discount has not completely disappeared." This is especially evident in smaller, faster-growing companies, such as health technology company Medley Inc., which is also Pomerium's top holding. Medley's board announced a dividend policy in August, targeting a payout ratio of around 30%.
Although Clifton would prefer more stock buybacks at current prices, he welcomed the move. "This is certainly much better than acquiring luxury hotels or investing in data centers," he said.
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