Overseas Investment Fever Grips Korea

Cho Dong-hyeok, the director of global management at Korea Investment Trust Management (KITM) who is generally responsible for its Vietnam funds, had to confront an individual investor last month who almost begged, “Please take my money.”

He said, “The day after we closed the application for our Vietnam funds, a middle-aged woman brought 300 million won to our office. She said that she had long awaited an opportunity to invest in Vietnam but learned that we sold our Vietnam funds when it was already too late.”

Interestingly, this is not an isolated case. There is an overheated frenzy of investing in overseas funds in Korea. Those who are interested in investment in funds only talk about overseas funds. The fever is so strong that it might degenerate into a blind investment.

The problem with overseas funds is that they are a “high-return, high-risk” fund. Many securities experts say that it is time to remain alert since a plunge in the unstable stock markets in emerging economies might lead to collective damage to investors that would include loss of their invested principals.

Refinancing Prevails-

Nah Yeong-seon, a 29-year-old company worker, gained handsome amounts of money by investing five million won apiece into two Chinese funds and an Indian fund, early this year.

As of late December, the return on her Chinese funds stands at 45 percent and that on the Indian fund is about 36 percent.

Nah said, “The outcome is very good. I’m planning to increase my investment considerably.”

According to Zeroin, a fund evaluation agency, investment in overseas funds increased 216 percent this year from 3.8293 trillion won to 12.1002 trillion won as of December 21.

Also, a soaring number of investors refinanced their investments by selling their domestic funds and investing in overseas funds.

The monthly increase of the amount of domestic equity funds, which reached 1.8 trillion won in June, dropped by a third by November, while that of overseas funds surged from 80 billion to 1.3 trillion won over the same period. This means that investors disappointed by the unimpressive performance of domestic stock markets shifted their focus to overseas markets, including those in China and India.

Thai Stock Market Plunge Halves Returns-

China’s benchmark Shanghai composite index jumped by 101.86 percent from 1,161.05 points late last year to 2,343.66 points on December 22, posting the greatest growth among major global stock indices. India ranked fifth in stock price gains at 43.35 percent.

As returns on funds invested in these countries increased, money surrounding the stock market funneled into emerging economies, such as those of China and India. Namely, a virtual circle of increasing returns and investment was established.

About 24.3 percent of investments in overseas funds are concentrated in China, while 10.8 percent of the money flows to India.

Chinese offshore funds offered by foreign asset management companies in the global market also have Korean investors as their main customers.

“China Fund A” by Templeton Asset Management has a net asset total of 965.9 billion won, and 431 billion won (almost half of the total) was sold to Korean investors.

More recently, Vietnam is also rapidly emerging as a new center for overseas fund frenzy.

The three Vietnam funds introduced by KITM in late November quickly sold out, attracting 294.7 billion won in just a month. The figure is 1/40th of the aggregate value of listed stocks (12.266 trillion won) in Vietnam. This implies that Vietnam funds sold in Korea could sway the Vietnam stock market.

However, many experts in the securities sector warn that it is risky for inexperienced investors to pour a large amount of money into emerging markets that still have political and economic uncertainties.

Opened in 2000, the Vietnam stock market is in its initial stage with just 130 listed companies.

The 16-percent overnight collapse of the Thai stock market following the release of sudden curbs on foreign investment by authorities well illustrates the risk of the emerging markets. The returns on three funds related to the country that exceeded 20 percent this year were halved in an instant.

Diversify Your Investment-

Lee Dong-ju, a 31-year-old company worker, invested four million won in an Indian fund for five months late last year.

He bought the fund after watching a TV commercial. However, he sold it in late April because returns on the fund failed to keep pace with the average Indian stock index.

Although the return on the fund stood at 11 percent before he sold it, the Indian stock market nosedived about 40 percent for a month afterwards. Indeed, no one can predict that what the performance of stock markets will be.

None of the top 10 funds posted more than 10-percent returns this year in terms of returns last year. Rather, six out of the 10 funds showed negative returns, eroding principals.

Yun Tae-sun, chairman of the KITM, pointed out, “You should keep in mind that an unexpected risk can send the stock market tumbling in emerging economies. It is too risky to concentrate your investment in one market.”

sohn@donga.com ssoo@donga.com