By Park Hyong-ki
Staff Reporter
Risks will grow further for Seoul stocks amid global credit woes this year, and investors should seek alternative products that can help hedge risks concerning liquidity and inflation, said Lee Jae-heon, chief investment officer of Deutsche Investment Trust Management in Korea.
``Lingering liquidity and inflation risks are spurring volatility on the stock market,'' said Lee in an interview with The Korea Times.
He said the global credit crisis stemming from subprime turmoil in the U.S. is bound to undermine general sentiment and slow down investments in stocks going forward. The chief analyst said the contagion has spread over to Europe, and has negatively affected Korea first among emerging economies in Asia.
Like the U.S., the country's banks are also having fund shortage problems, and this along with inflation is likely to add downward pressure on Seoul stocks. He said U.S. financial firms are asking sovereign wealth funds of other economies for liquidity, and this clearly points to credit trouble.
Uncertainty in the U.S. is much more of a concern for Korea than China's tightening of its monetary policy as the U.S. is the largest economy in the world, and its recession means less consumption and less Korean products being exported there, Lee noted.
Therefore, the CIO recommended investing in safer assets such as treasuries or state bonds. ``Commodity funds or funds investing in agricultural companies are good products that can hedge growing inflation risk for investors.''
He said investors should lower their expectations of returns this year amid the instability of global financial markets, and lessen their investments in equity funds.
Although diversifying investment portfolios is a sound way to hedge risks, Lee believes it may take some time for Korean investors to get used to diversification, given that they have just begun learning about the art of investing.
Since the stock market has only been bullish over the last two years and is still developing, he said it is obvious to see investors rushing to certain products that showed favorable growth in the past such as China funds.
He expects the Capital Market Consolidation Act to help investors diversify their investments as it encourages securities companies to offer a wide range of financial products by breaking down business barriers between brokerage, asset management and futures firms.
``I believe the act will boost the development of the capital market,'' said Lee.
For now, he reiterated that investors should increase their investments in state bonds or funds investing in debt securities, while lessening their reliance on equities, at least, until the global credit crisis abates.
He also recommended investors to utilize education programs offered by the Asset Management Association of Korea to learn a few things more about tools of investing and hedging to enhance their knowledge. ``More education is needed for investors,'' said Lee.
phk@koreatimes.co.kr