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By Kim Yoo-chul
More Koreans are opening global accounts with domestic brokerages to buy foreign stocks, providing a lucrative source of income for securities firms.
Analysts say the local stock market is still a "great place" to find value, and particularly "right now" when the U.S. stock market is overvalued. They say valuations of the country's well-known blue-chip stocks such as Samsung, SK and LG Group are "still cheap."
Korean investors, however, are seeking long-term returns via investments in U.S. technology stocks.
The Korea Securities Depository said the total trading volume in foreign stocks during the first six months of this year was $16.59 billion, up 78 percent from the same period last year.
"We advise investors that risks are different when investing in U.S. stocks; however, given the low economic growth and high volatility of the domestic market, clients are buying more foreign stocks especially those listed on the Nasdaq," Choi Hwan-bong, head of global equity consulting at MiraeAsset-Daewoo Securities, said.
"In the U.S. stock market, for example, the value of investment is shifting dramatically not only because of a company's success or failure, but also because of external factors such as political turmoil and currency devaluation," Choi said.
Amazon, Facebook and Google are the top-picks for local investors given their substantial share in their respective businesses they are involved in, growth potential and better shareholder returns.
MiraeAsset-Daewoo said total assets it has invested in foreign equities has exceeded 5 trillion won, the largest volume among Korean brokerage firms. It plans to create an independent unit to handle investors in foreign stocks. "We've been operating various educational programs," said the brokerage.
"Opportunities are not bound by geography. Investing in foreign stocks means holding shares of companies that are not only based in different geographical locations; they are also driven by respective economy-specific factors," said a hedge fund manager in a local brokerage firm.
What could be the benefits to brokerages?
Kang Seung-keon at HI Investment said the emerging trend will help brokerages collect more commission as revenue channels diversify.
"Investors need to pick the right trading platform based on their investing style in addition to factors such as fees, costs and facilities offered by the brokerage firm. Because going direct isn't suited for small or casual investors, the growing demand for foreign stocks will see a few local brokerages benefit the most," said Kang.
The Korea Financial Investment Association said local brokerages earned 40.5 billion won from commissions on foreign stock investments in the first three months of the year compared to 99.1 billion won they earned last year.
