Brokerages expand overseas investment

By Kang Seung-woo

Korean securities companies’ investments overseas increased in the first half, compared to a year ago, as they make efforts to diversify their profit sources, the financial watchdog said Thursday.

And emerging Asian countries that are competing heavily to draw investment are becoming the destination.

According to the latest figures from the Financial Supervisory Service (FSS), a total of 28 local brokerages’ overseas investments reached 2.47 trillion won ($2.16 billion) in the January-to-June period of 2011, up 25.7 percent from 1.97 trillion won a year earlier.

The overseas investment is comprised of 1.43 trillion won from purchasing foreign assets including equities and bonds and 1.04 trillion won investments in overseas-based subsidiaries.

Since June last year, investments in local subsidiaries have been hovering around 1 trillion won, while foreign asset purchases have increased from 963.2 billion won.

Previously, local players’ asset purchases were mainly limited to equities, but recent their portfolios are verifying, with money being pumped into beneficiary certificates, bonds and loan obligations.

The United States was the leading investment location for the local brokerages, as they spent 294.9 billion won as of the end of June, but its portion is declining.

“With China and Hong Kong emerging as investment destinations, the weight of the United States is lower,” said an FSS official.

According to data, 23.5 percent of overseas investment went to the United States by June of last year; but it stood at 20.6 percent in the first half of 2011.

Meanwhile, investments in China and Hong Kong rose sharply, about seven-fold and three-fold respectively, to 197.8 billion won and 180.9 billion won.

In addition, their proportions, at 2.9 percent for China and 5.6 percent for Hong Kong, jumped to 13.8 percent and 12.6 percent apiece.

In terms of global expansion, brokerages rushed to spend most in emerging Asian markets, based on financial hubs.

Among the 1.04 trillion won, a combined 725.9 billion won was spent in Northeast and Southeast Asia ― 665.7 billion won in Hong Kong and 60.2 billion won in Singapore ―, followed by the Americas at 92.6 billion won and Europe at 76.5 billion won.

Fifteen out of 28 firms expanded to Hong Kong thanks to its geographical proximity and liquid labor market, as well as being a stepping stone for entry into China.

Since 2010, they have expanded retail businesses dealing with individual investors through joint ventures and takeovers of local securities firms in China and Indonesia.

The brokerages are also busy establishing local subsidiaries in emerging Asian markets.

Ten local subsidiaries were established this year, nine of which are in Asia including the economically fast-growing Vietnam and China.

As of the end of June, local securities firms operated 93 offices, units and local subsidiaries in 15 countries, according to the FSS.

Despite the increasing investment by securities companies, they saw their foreign operations post losses in fiscal 2010 due to growing sales and maintenance costs, the FSS said.

In addition, increased market volatility, sparked by European sovereign debt crisis, ate away at their earnings.

The overseas units suffered a combined net loss of $65 million in the year that ended March 31, which is a steep decline from a profit of $8 million the previous year.