Nearly 70 percent of foreign investors expect South Korea's government-led Corporate Value-up Program to have minimal or moderate impact on the capital market, according to a recent Bank of America survey.

The survey, conducted earlier this month with around 200 Asian fund managers, revealed that 22 percent foresee "no significant impact" from the program, a 6 percent increase from July's results. Meanwhile, 44 percent anticipate a "moderately positive impact," while only 10 percent expect a "strongly positive impact."

In February, Korea launched the Corporate Value-up program, aiming to boost the capacities of listed companies and tackle the persistent undervaluation of its stock market.

Despite initial optimism that the program would address the phenomenon of the "Korea discount," that results in local stocks trading below their fundamental value, last month's guidelines have faced criticism. The lack of compulsory measures and effective incentives to drive corporate participation has been a major point of contention.

As of Friday, only 20 companies -- mainly from the financial sector -- have submitted or pre-announced value enhancement plans, representing just 0.8 percent of the 2,577 listed companies on Korea's Kospi and Kosdaq exchanges, according to Korea Exchange's regulatory filing system, KIND.

The BofA survey also showed that South Korea is among the less favored markets in the Asia-Pacific region. Investors reported being net 5 percent underweight in Korean stocks, indicating they have allocated 5 percent less of their portfolios to the Korean market compared to their overall market exposure.

Japan led the region as investors reported being net 41 percent overweight in Japanese stocks, followed closely by India at 39 percent. Stocks from Taiwan, Indonesia, New Zealand and the Philippines are also preferred over South Korean stocks.

The report noted that South Korea’s relatively lower appeal to foreign investors is partly due to shifting expectations about the semiconductor industry.

"Tech-heavy Taiwan and Korea saw a drop in allocation, with Taiwan displaced from the top three for the first time in nine months," the report said. "Investors continue to prefer technology, but we do note a clawback in allocation alongside a souring of sentiment towards other cyclical sectors, like energy and materials, in favor of defensives, such as health care and utilities, on emerging US recession risks."

According to the survey, investors have reduced their outlook on the semiconductor sector to a 19-month low, with only 29 percent expecting growth in Korean and Taiwanese exports due to a stronger semiconductor cycle over the next 12 months.