Oversea Finance Products, Increasing Indirect Investment

It is shown that private sectors, such as institutional investors of insurance, securities and investment trust companies and also private investors have invested about 11.4 billion dollars in overseas stocks, bonds and mutual funds.

This is due to lack of suitable long-term bonds to invest in the domestic market and low current interest rate. This has resulted in movement of capitals to oversea investments.

On February 2nd, according to the Bank of Korea’s report, ‘Indirect investment in overseas by private sectors’, the total indirect investments by private sectors excluding the banks in the previous year amounts to 114.1 billion dollars.

This is 65.2% higher than the year 2001’s investment of 69 billion dollars and 177.3% increase from year 2000’s investment of 41.1 billion dollars.

Among the 45 billion-dollar investment increase, the insurance companies are solely responsible for 70.7%, which amounts to 32 billion dollars.

The Bank of Korea explains that the life insurance companies’ products are mostly 15 to 20 years long term prospects. This is why they require long-term bond investments but the domestic market is inadequate to supply these demands. So the insurance companies are increasing their overseas long-term bond investments.

In last year, increased amount in the life insurance companies’ invested assets amounts to 16 trillion won. However total government bonds (10-yrs) issued in last year amounts to only 6 trillion won.

It is analyzed that the increase in the overseas investments by private sectors is caused by fall in the interest rate and lack of profitability in the domestic finance investments. That is why they are increasing their investments in the overseas mutual funds, which have higher interest rates and are secure.

Kwu-Jin Lim mhjh22@donga.com