South Korean stocks are currently the "most undervalued" among the North Asian equity markets, according to one strategist from State Street Global Markets.
South Korea's market performance has lagged far behind its regional peers so far this year. Into Monday's market close, the Kospi has only risen around 2.3% year to date. In comparison, Japan's Nikkei 225 has soared about 17% in the same time period while China's Shanghai composite has surged approximately 16.9%.
"When we actually look at the Korean equity market, there's a number of things that we actually like within," Ben Luk, senior multi-asset strategist at State Street Global Markets, told CNBC's "Street Signs" on Tuesday.
Luk said investors still seem focused on the Sino-U.S. trade war, but that "there's basically no details yet in terms of the phase one or even phase two deal that we could anticipate next year." The ongoing trade fight between Beijing and Washington has lasted for more than a year and has taken a toll on export reliant economies such as that of South Korea.
"What people need to know is that ... the trade cycle could be bottoming out," the strategist said, adding that many global manufacturing Purchasing Managers' Index figures have been "hovering" in the last few months.
Acknowledging that the worst may not be over as more data needs to be observed on the Asian export side, Luk said: "I think that people are still over excessively under-pricing ... the rebound that we could see in many of the North Asian equity markets."
Corporate governance reform
Luk also pointed to issues on corporate governance as a catalyst and said the South Korean market is seeing a lot more dividend payouts, driving the "total returns story" as a result.
Nomura's Jim McCafferty said investors in South Korea are starting to follow Japan's lead on that front.
"In terms of what we're seeing in Japan right now ... we pointed out that internally you've seen some change, local investors engaging with management," McCafferty, who is joint head of Asia Pacific equity research at Nomura, told CNBC on Tuesday. "There are some signs that that's beginning to happen in Korea."
He cited the example of Hanjin KAL — the holding firm of Korean Air — where a local fund called Korean Corporate Governance Improvement (KCGI) raised its stake in the company after Hanjin Chairman Cho Yang-ho passed away in April this year. According to a September report from Reuters, KCGI holds a 16% stake in Hanjin.
"We're hoping that will agitate for some management change," the analyst said, though he acknowledged that the "government's reform is not fast enough."