By Kim Jae-kyoung
South Korea has become less attractive to foreign equity investors among emerging markets, with more global funds flowing into the so-called BRIC countries ― Brazil, Russia, India and China ― on the back of the rapid growth in those countries.
According to the Korea Center for International Finance (KCIF), foreign investment in the local equity market reached $236 billion at the end of last year, well below China’s $408.4 billion and Brazil’s $376.5 billion.
Russia and India are also catching up with Korea at a fast pace as investment in the two jumped to $171.7 billion and $93.4 billion, respectively.
“Korea had been the sole leader among emerging markets until 2005 but it is now overtaken by China and Brazil as their economies have grown fast over the past decade,” KCIF Vice President Ahn Nam-ki said.
Korea’s GDP was much bigger than those of India, Brazil and Russia but it was overtaken by Brazil and Russia in 2006 and by India in 2007.
“It is natural that the capital market gets bigger in line with the growth of economic size. In that regard, it is not a surprise that BRICs have surpassed Korea in foreign equity investment,” he said.
“The problem is that the local market is losing attractiveness among global investors. In the past, foreign investors considered Korea a ‘must-have’ country. But with the rise of BRICs, its status has dropped to a ‘one of them’ nation,” he added. “If this trend continues, it can hamper the long-term growth of the local capital market.”
Korea also ranked third in Morgan Stanley Capital International’s (MSCI) investment in emerging markets in May, with MSCI’s investment in Korea accounting for 13.4 percent, behind China (18.8 percent) and Brazil (15.6 percent).
In March 2005, Korea came in first with 18.9 percent, followed by South Africa (13.6 percent), Taiwan (13.4 percent) and Brazil (7.7 percent).
“In order to attract more foreign capital, the country should focus on overhauling the capital market system into a more advanced one and improving corporate governance of local businesses,” Ahn said.