[Editor’s Note] Frustrated at shrinking returns, investment money are flowing out of Korea

Unlike the U.S. Fed’s quantitative easing program that had boosted U.S. equity markets for more than six years from 2009, the Bank of Korea’s five policy rate cuts in the past two years, including the surprising one earlier this month to a record low of 1.25%, have not been successful to induce Korean investors to riskier assets such as domestic equities.

It is not surprising, therefore, to see Korea’s key savings funds, such as Korean Teachers’ Credit Union and Public Officials Benefit Association, have been lowering interest rates paid to their members, in the face of growing money inflows into those funds. “If we stick to the current interest rate, we cannot help expanding riskier investments” said a source of a local savings fund. “But we have a hard time in explaining this to our board members.”

Reflecting this tricky investment environment at home, money has been rapidly flowing out of Korea. National Pension Service has just decided to cut its net increase in domestic equity investment by 95% next year from this year’s level. Insurance companies also have been raising overseas investment as they are struggling with reverse margins on insurance products they had sold decades ago.

Feel the opportunities? Track records of delivering stable cash flows with expected returns of a mid to high single digit rate would be a good enough asset you can leverage to take these opportunities.

Wish you a good luck,

Chang Jae Yoo

Editor, the Korean Investors