SEOUL, Jan. 17 (Korea Bizwire) — Funds that invest in overseas assets such as stocks will see steady growth this year after a stellar performance last year, as investors park more money in such vehicles, market sources said Friday.
Overseas investment funds under management in South Korea almost doubled to 183.7 trillion won (US$158.8 billion) last year from a year ago, taking up 28.3 percent of all investment funds, according to data by the Korea Financial Investment Association (KOFIA).
The growth of the overseas investment funds came amid low returns from domestic-focused funds.
“The highlights of the 2020 funds market will be the continued upbeat growth of the overseas investment funds over domestic investment funds,” Shinyoung Securities analyst Oh Gwang-young said.
The analyst said investors’ appetite for overseas stocks and real estate assets becomes inevitably strong in a time of “low interest and low growth.”
The overall gap between the yield rates at home and overseas is expected to remain a strong driver of the overseas investment funds, brokerage data showed.
In fact, overseas investment funds reaped stellar returns last year as the eased uncertainties over the Sino-American trade tussle, the rebound in global stock indices and a hike in oil prices pushed up overseas funds’ yield rates.
For one, funds that invested in Russian assets saw the highest return of 40.07 percent last year, according to Shinyoung Securities data.
Funds investing in U.S. assets also registered a return of 31.35 percent, helped by the Fed’s eased monetary policies, eased concerns over the Sino-American trade row and a tech stock rally led by Apple Inc.
Last year, the country’s investment funds market grew 21 percent on-year, the fastest jump since 2009, with their net asset value (NAV) reaching 658.8 trillion won, amid lingering economic uncertainties and a mini rally in the local stock market that boosted overall value.
In 2019, the benchmark Korea Composite Stock Price Index (KOSPI) advanced 7.67 percent, buoyed by rising optimism for the trade deal between Washington and Beijing and a much-coveted economic recovery.
This year, the KOSPI has gained 3.35 percent through Thursday.
In addition to the rise of the overseas investment funds, private investment funds are also expected to nudge higher this year.
Privately placed funds in South Korea took up about 64 percent of the overall funds in 2019. Such investment funds expanded by 23.5 percent.
But the local privately placed funds’ growth may take a breather this year in the face of a series of scandals and tightened regulations.
Since August, financial authorities have probed Woori Bank, KEB Hana Bank, brokerage firms and asset managers over the misseling of derivatives-linked products, which has incurred heavy losses to retail investors.
In October, the Financial Supervisory Service (FSS) said about 20 percent of 3,954 cases detected may violate laws or internal rules on selling the derivatives.
The Financial Supervisory Service (FSS) decided to limit the maximum worth of equity-linked trusts (ELTs) sold by banks to under 40 trillion won while mandating banks expand a set of measures to protect investors who buy high-risk financial products.
An ELT is a type of equity-linked security structured to track the performance of underlying assets, such as an individual stock or an index, and not guaranteeing principal as investors prefer instruments that promise higher yields.
Also, Lime Asset Management Co., which amassed money via banks for improper products, is facing suspicions that it engaged in trading irregularities to bolster fund yields.
The country’s top hedge fund froze withdrawals from funds worth over 1.5 trillion won because it failed to liquidate assets to meet redemption requests by clients.