Business | Investment
Calm and confident in equity investing
South Korea and Taiwan have become important asset management markets .
- By Peter Guest, Financial Times
- Published: 00:01 August 9, 2008
South Korea and Taiwan are rarely mentioned in these days of feverish product demand in China and disappointing market reports from Japan, but they are far more than a footnote in the Asian investment story.
Both share with more cosmopolitan Singapore and Hong Kong an increasingly international perspective and are already important asset management markets in their own right.
In South Korea, the investment landscape has shifted significantly over the last five years, from one dominated by the large institutions with short investment horizons to a retail-centric market, confident in investing in equities and with an appetite for emerging markets.
The rise of retail in Korea has been driven by a number of factors, according to Cho Sung Lee, co-chief executive of Mirae Asset Management. The ageing population is no longer convinced that the state welfare system will be able to accommodate their retirement needs, and bank interest rates, which have typically been high enough to encourage saving over investment, no longer look attractive.
The Regular Savings Plan vehicle, which allows Korean investors to make small, regular investments, is now being widely used as a gateway to equity investment and diversification.
Lee puts the size of the Korean funds market at about 360,000 billion won ($360 billion), of which about 140,000 billion won is invested in equity funds. Of this, about 40 per cent is in overseas mandates.
Dramatic growth
"The number has grown dramatically in the last few years because of the great interest from Korean investors in emerging markets," he says.
"They want alpha generation, something that generates more than Korea. They have placed special interest in Brazil, Russia, China and India - BRIC economies.
Given the growth in the Korean equity market, which was up four times between 2003 and 2007, it is understandable that investors are looking for high returns. But although emerging markets have taken a battering in recent months, investors appear to have bought in for a longer-term play, Lee believes. "Investors have not made significant redemptions, which means they are serious about them in their long-term outlook."
Certainly, the Korean market has proved interesting for Axa Investment Managers, which has announced a joint venture with Kyobo Life in the country. Seoul is probably the biggest market in the region outside Japan and Australia, according to Anthony Fasso, chief executive for Axa IM Asia Pacific. "A strong growth rate, planned changes to corporate pensions and the rapid growth in the mutual fund markets support Korea as one of the stand-out asset management opportunities in the region," he says.
However, following the imposition of a capital gains tax on offshore investments last year, entry into the Korean market has become more difficult, according to Fasso.
Further south, Taiwan, another of Asia's major fund management markets, has made steps to liberalise offshore access, with the introduction of a master-agent regime, whereby a locally registered broker or custodian can act as an agent, allowing offshore funds to be distributed in the country.
"The Taiwan market's been very sophisticated in terms of buying offshore funds for 20 years now," Fasso says.
"They've been very focused on Japan for the last several years, particularly Japan small caps and Asia-Pac small caps. But with the volatility in markets in recent years, the focus there really is on cash and short-duration bond funds, and Taiwan money market funds. Having said that, some investors, we're noticing, are starting to put money to work in global emerging market funds and Asia large cap funds."
The biggest boon for the Taipei marketplace would be a thawing of relations with China. Taiwanese investors are prohibited from taking exposure to China, though that is changing to allow some investment through Hong Kong listed China stocks, Fasso says.
Even so, the difficulty in accessing Chinese returns directly presents challenges for investors and fund managers alike.
For investors, it prohibits them from benefiting to the same extent as their Asian neighbours from China's explosive economic growth, and for managers it means it is difficult to run an Asian portfolio if its investors are Taiwanese, according to David Jiang, chief executive, Asia Pacific at BNY Mellon Asset Management.
"We find that Taiwan is slightly different from Korea or Japan, which have more Asia-based investments. In Taiwan investors are going towards more global equity," Jiang says.
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