China funds set to rise in Korea
China is emerging as an important source of foreign funds in the local stock and bond markets, Korea Investment & Securities said yesterday.
The portion of Chinese capital has been rising at a rapid rate for the last three years.
China is now the fourth largest foreign holder of Korean bonds, after the U.S., Thailand and Luxembourg, as its share has grown from 0.2 percent at the end of 2007 to 9.3 percent at the end of 2010.
“Chinese capital is not following short-term market trends but is related to a decision by China Investment Corporation, the Chinese sovereign wealth fund, to designate a local asset management firm to operate a fund to solely invest in the Korean market,” Park So-yeon, an analyst at Korea Investment & Securities, said in a report.
Oh Seung-hoon, an analyst at Daishin Securities, said it was significant that CIC created a fund to solely invest in Korea. “It means they highly evaluate the Korean capital markets along with other major emerging markets in India and Brazil.”
Market observers note that Chinese funds are buying Korean bonds with an average maturity of four years, which is the second largest bond maturity after those bought by Japanese investors.
“This means that they consider the Korean market as a long-term investment,” Park said.
Chinese investments in the local stock market are also growing rapidly. Before the 2008 global financial crisis, Chinese equity investments were small.
China posted net purchases of 370 billion won ($333 million) in equities in 2008, but investments rose to 860 billion won in 2009 and 1 trillion won in 2010.
Although China accounts for less than 5 percent of total foreign net equity purchases, that figure is expected to increase.
China, which usually has strong trade surpluses, is expanding its overseas investments to ease international pressure over a revaluation of the renminbi by exporting capital and allowing its capital account to post a deficit.
China announced last December that it is going to increase overseas investments through CIC, Qualified Domestic Institutional Investor and Overseas Direct Investment accounts.
Taking these factors into consideration, China could inject as much as $6 billion into the local stock market in the medium to long-term, according to the Korea Investment & Securities.
By Jung Jae-yoon [firstname.lastname@example.org]