Koreans miss out on bull markets overseas

As Korea’s main Kospi index hovers at the 2,500 mark on the back of strong exports and buying by foreigners, stock markets in the developing world have also done well. While the Kospi rose 23 percent from the beginning of the year, Brazil saw a 28.7 percent increase, India a 24.2 percent rise and Vietnam a 23.6 percent hike as of Oct. 25.

Developed nations with much bigger stock markets also enjoyed hikes, with the United States’ S&P posting a 13.3 percent increase and Germany’s DAX30 an 11.7 percent increase. The Nikkei225, Japan’s main index, has risen by 10.8 percent from the year’s start.

But Koreans investors have not fully enjoyed the bullish market streaks on overseas markets, data from the financial information firm FnGuide showed.

According to FnGuide, only 75.2 billion won ($66.4 million) has been added to overseas equity funds over the past year. FnGuide’s data showed that the average two-year profitability of domestic stock funds stands at 20.4 percent, while that of overseas stock funds was 21.6 percent. The gap widens for four-year average earnings. Korean equity funds yielded a 27.2 percent earning average on a four-year-basis while overseas equity funds yielded 42.2 percent.

Over the past two years, 725.4 billion won that was previously held in overseas equity fund investments has been withdrawn for a number of reasons, including a lack of investment diversification offered by asset management corporations and local asset management firms being overly focussed on domestic equity funds.

Korea’s percentage of foreign stock investments compared to GDP is also lower than many developed nations, according to the Korea Financial Investment Association (KFIA). As of late last year, Korea’s foreign stock investments compared to its GDP stood at 21 percent, which is much lower than the United States’ 53 percent, Japan’s 79 percent and Germany’s 86 percent.

But while not much capital is flowing overseas, there is ample capital going around domestically, data by KFIA shows. As of July, there was 1,035 trillion won in short-term floating assets, an indication that people are holding onto their assets in anticipation of another boom in the real estate market. Experts say the government should pave the way for investors to invest in overseas market by extending tax exemptions on earnings made from foreign stock funds.

In February 2016, the government introduced a tax exemption on earnings from sales of foreign equities and from foreign exchange profits to foster overseas funds investments. The exemption is set to expire by the end of this year.

“Risk diversification is a difficult thing to achieve. And it is also hard to prevent the concentration of assets in real estate,” said Song Hong-sun, a senior researcher at the Korea Capital Market Institute.

“Extending the tax break on gains from overseas fund investment could encourage investors to diversify their investment portfolio into overseas markets.”

BY CHO HYUN-SOOK, LEE SEUNG-HO [kang.jinkyu@joongang.co.kr]