SEOUL, Oct. 5 (Korea Bizwire) — The South Korean bourse operator said Monday that it will seek to lure overseas exchange traded funds (ETFs) into the local stock market in order to meet rising demand for overseas direct investment by locals.
An ETF refers to an investment fund traded on stock exchanges and represents a basket of stocks that reflects an index, which provides retail investors and institutions with a more liquid and risk-hedging tool.
The Korea Exchange (KRX) said it will move to bring foreign big-name ETFs, including SPDR Gold and iShares Silver Trust, to the South Korean bourse, and also list various types of ETFs tracking foreign currencies and Treasurys, such as the Chinese yuan and Japanese yen, on the local stock market.
Separately, the KRX will join hands with its Taiwanese counterpart in cross-listing their own ETFs and cooperate with Asian rivals to develop an index that covers South Korea, Hong Kong, Taiwan, China, Japan and India.
In order to make the local ETF market affluent, the South Korean operator will allow brokerage houses to deal with leveraged ETFs, designed to achieve high returns, and inverse ETFs, which move opposite to their benchmark index.
The KRX measures are a follow-up to a set of steps unveiled by the Financial Services Commission, the country’s financial regulator, to allow public and private pension funds to invest their money into ETFs.
Since being launched in 2002, South Korea’s ETF market has sharply drawn investors seeking safer investment vehicles, with assets under management skyrocketing to 20.7 trillion won (US$17.5 billion) as of end-September from 300 billion won.
But the country’s average daily trading volume of ETFs has been on the decline since it peaked at 792.5 billion won in 2013, as the local stock market has been tucked in a tight range in recent years.
The KRX said it is aiming at tripling the ETF market to 60 trillion won in total assets by 2020, with daily turnover reaching 2 trillion won.
The South Korean authorities expect the ETFs to provide higher, safer returns to retail and institutional investors at a time of low interest rates.