By Choi Kyong-ae
Record-low interest rates have revived Koreans’ appetite for global equity-type funds as they seek alternative instruments for stronger returns, the Korea Financial Investment Association (KOFIA) said Friday.
“As the stock markets in Europe and China have performed stronger this year than the Korean market, some Koreans found it better to invest in European and Chinese companies rather than Korean ones in terms of proceeds,” a KOFIA official said.
Investors see monetary easing approach in Europe and continued growth in China will bring them “relatively higher” equity gains than investment in domestic equities which are increasingly vulnerable to external factors, he said.
Koreans are going global by injecting their extra cash into the world’s major equity funds such as Global Emerging Market, Asia Pacific and Global Fund. They are expected to invest more into the funds for long-term gains, Lawrence Kim, an analyst at NH Investment & Securities, said in his research note.
In March alone, the world’s capital injection into equity funds in Europe and other advanced countries reached $29 billion on increased liquidity due to the European Central Bank’s quantitative easing and “later-than-expected” U.S. rate increases as early as this September, Daishin Economic Resarch Institute said in a recent report.
According to FnGuide, a Korean market research firm, Koreans earned an average of 14 percent in investment gains from Chinese equity funds in the January-March quarter. Their average gains from European equity funds were higher at 16 percent in the three months.
Analysts remained cautious, however, saying investing in overseas equity funds may still carry some risks as it is difficult for investors to get as much information about the stocks they buy as they can for Korean ones.
Korea’s net capital inflow into overseas equity-type funds rose by 625.8 billion won ($572 million) in March in a sharp reversal from its net capital outflow worth 775 billion won in December last year, KOFIA data showed.
Korean investors continued to sell their stocks in offshore equity-type funds for five years and seven months since July 2009 due to widening losses or unchanged gains from their investments, according to KOFIA.
In the years through 2007, BRICs equity-type funds designed to make an investment in stocks in four countries ― Brazil, Russia, India and China ― gained popularity and many Koreans bought the countries’ stocks. But their investments led to hefty losses after the 2008 financial crisis.
In contrast, Koreans invested 922.7 billion won in domestic equity-type funds in December but sold stocks worth 2.515 trillion won in bargain hunting in March. “The massive bargain hunting followed the main Korea Composite Stock Price Index’s 6.6 percent jump in the first quarter,” the KOFIA official said.