Korean punters going back to BRICs game

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Korean punters going back to BRICs game

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Mr. Hwang, a 34 year-old office worker, has invested 1 million won ($913) in each of three China funds this year. This is the first time Hwang has gambled on a China fund since he cashed out of one in 2009 after suffering a 15 percent loss.

Before making the investments earlier this year, Hwang was worried that he was getting in too late and the funds had already peaked. But Hwang decided to go ahead, believing the market would soon recover.

The average return rate on the investments is 16 percent. Hwang has also started to make direct stock purchases on the Shanghai exchange after it was further opened to foreigners early last year.

Korean investors are getting back into emerging markets and especially the BRIC countries - Brazil, Russia, India and China - as the stock markets in those countries are on an upswing. According to Zeroin, a financial information provider, the increases in value of Chinese and Russian funds from the start of the year to Friday were 18.6 percent and 30.3 percent, respectively. That’s largely because the Hong Kong and Russian stock markets rose 14.9 percent and 34.2 percent, respectively, during the same period. As a result, those funds were able to attract 280 billion won from Korean investors since the start of the year.

Emerging markets became a major disappointment in the wake of the global financial meltdown that started in late 2008. Even after advanced economies like the United States started recovering, emerging markets barely benefited. But now they’re coming around.

“The sentiments have recently been changing,” said Cho Byung-hyun, an analyst at Yuanta Securities Korea. “The discussion of the establishment of the Asian Infrastructure Investment Bank (AIIB) led by China is in progress while the need for investing in global infrastructure is being raised in the advanced economies.”

When investments increase, economic growth improves, which leads to upswings in stock markets. The fact that markets in the advanced economies are improving has benefitted emerging markets as well.

“As the markets in advanced economies have gone up sharply there has been recognition that the stock markets in the emerging markets have been relatively undervalued,” said Shin Dong-joo, chief strategist at Hana Daetoo Securities.

The market that attracts Korean investors the most is undoubtedly China. Even among BRIC countries, China funds have attracted the largest investments.

Market analysts say although there will be ups and downs, in the mid to long term the Chinese market will see bullish growth. Beijing is certainly set on maintaining growth, having cut interest rates three times in the last six months.

Not only are there huge expectations of the Chinese government increasing investments in infrastructure regionwide, the government’s encouragement of both foreign and domestic investors is expected to play a significant role in the Chinese stock market.

For the Russian market, the recovery of crude prices has become a major factor in the upswing of its stock market. On the Russian stock market, energy accounts for 85 percent of all shares listed. West Texas Intermediate crude, which was traded at $43.46 per barrel in March, had risen to $59.39 as of Friday.

Interest in the Brazilian market has also risen on views that international prices of raw materials have reached their nadirs and have nowhere to go but up.

Analysts, however, warn that investing in emerging markets is a high-risk, high-return game.

“As there is huge volatility, investors should be investing in countries with strong fundamentals,” said an analyst at NH Investment & Securities, “and they have to look at their investments in the long term.”


BY CHUNG SUN-GU [lee.hojeong@joongang.co.kr]

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