Korea’s timid investors

The Korea Fund, a U.S. mutual fund created in the 1980s to allow Americans to invest in Korean shares, was the brainchild of Nicholas Bratt, one of the first American global equities fund managers to turn investors’ attention to emerging markets. His company, Scudder Stevens and Clark - one of the oldest and largest American asset management firms - arranged the fund’s listing on the New York Stock Exchange.

In the mid-1970s, Bratt was an aspiring analyst on the Japan desk at Scudder. He frequently visited Japan. While interviewing Japanese companies at the time, he repeatedly heard their concerns about the rapid rise of Korean companies. Since he knew nothing about Korea, he got on a plane to make his first visit in 1975. He marveled at the potential of Korean companies like Samsung Electronics and Pohang Iron and Steel.

As soon as he returned home, Bratt nagged his employer to create a fund devoted to Korea. It was a huge risk as U.S. companies did not even consider investing in Canada at the time. When he couldn’t persuade his executives, he took them on a trip to Korea along with a group of potential investors. They were impressed and agreed to launch the Korea Fund. It debuted on the New York bourse in 1984.

I worked at the Korea Fund for 15 years from 1991. Looking back, I consider those days the happiest of my entire life. I traveled around the world with Bratt to introduce the fund and Korean shares to investors. The fund was a hit. The 60 billion won ($50 million) started in 1984 and ballooned to 1.5 trillion won by the time I resigned. I remember the quote for a share of Samsung Electronics in the portfolio being less than 10,000 won at the time.

I learned a lot about investment while working at Scudder, which pioneered the field of asset management. That company has stayed true to its belief that a stock is a long-term investment. Through a stock purchase, one does not own a mere securities certificate, but a part of a company that is constantly growing and changing.

I worked my younger days pitching Korea to foreign investors. Now I want to devote my older days to help establish a U.S.-style advanced investment culture in Korea.

Korea desperately needs to change its investment approach. Most retail investors still think stocks are a short-term trade and they don’t invest with confidence because they fear losing the principal. Like many Americans who have made a lot by investing in an unfamiliar country in the Far East 30 years ago, Korean investors also need an entirely new view of stock investment. Stocks are not risky assets. They represent security for old age. Staying away from the stock market out of fear of losing can keep some of your money safe. But at the same time, one is missing out on the potential gains from investments. The portion of stock investments in retirement funds is significantly lower in Korea than in other countries. One of the results, I believe, is that the poverty rate of senior citizens is sharply higher in Korea than in most developed countries. Most middle-age Koreans today were not familiar with stock investments when they were younger. It’s a shame. They couldn’t prepare for old age.

Japan underwent a stagnation that lasted over two decades because it did not understand the role of finance. Unlike many Americans who invest in companies for their retirement, most Japanese stacked away savings in bank accounts that generated zero returns. In order to avoid a Japan-like crisis, Koreans must untie their retirement funds from banks to invest in companies in various ways. This practice would stimulate a positive cycle of making both companies and individuals richer.

The world is changing at an unprecedented pace. Smart management of capital has become essential. Management of capital is one of the two pillars of capitalism along with labor. It’s the most important pillar now. More and more people will become wealthy through stock investments. Instead of trying to protect their investment principals, people should hunt for treasures in the stock market. There are always hidden treasures. They can truly be gold when money is placed in them for the long term.

*The author is the CEO of Meritz Asset Management.

JoongAng Ilbo, Dec. 11, Page B8

John Lee