Korea pension funds show mixed reaction to Brexit decision – report

A savings fund in South Korea is studying raising its exposure to European equities, stocks and infrastructure assets after the Brexit decision, whereas a local pension fund is considering diverting planned investments in Europe to U.S. stocks and bonds, a local newspaper reported on June 26.

Domestic pension and savings funds, including the National Pension Service, have reviewed and adjusted their asset management plans over the weekend, in response to Britain’s vote to leave the European Union which sent global financial markets into a tailspin on Friday.

Some savings funds saw little chance that the Brexit would trigger other European countries to follow suit anytime soon, and small-sized South Korean savings fund are expected to benefit from short-term trading in European stocks and bonds, the Financial News said.

“Bond yields went up in Europe and it would rather provide a good opportunity to boost returns,” the South Korean newspaper quoted an unnamed chief investment officer of a domestic savings fund as saying. “Because it is not a problem of asset deterioration, but a political problem in Europe, government bonds issued by countries with robust fiscal conditions such as Germany and France and corporate bonds are worth investments,” he added.

On infrastructure investments in Europe, the CIO was also optimistic, expecting that the weakening pound and euro would translate into currency gains. The daily cited him as saying: “Interest rates have gone up in proportion to risks, so we will consider making an additional investment.”

By contrast, some pension funds in South Korea are planning to hold off new investments in Europe and instead further increase the purchases of U.S. stocks and bonds, on the views that the Brexit would deter the Fed from raising interest rates for the remainder of this year.

An unidentified South Korean pension fund source in charge of overseas investments told the newspaper: “In our internal meeting, we discussed raising U.S. investments and scrapping all investments plans (for Europe) this year, while leaving the existing European investments intact. We have also decided to stop all infrastructure investments in Europe.”

Following the Brexit decision, asset management companies have asked pension funds and insurance companies in South Korea about any change in their infrastructure investment plans for Europe, the newspaper reported.

South Korea’s pension and savings funds, including the Public Officials Benefit Association and the Korea Post, have been increasing their exposure to office buildings and infrastructure in Europe and other advanced markets, in pursuit of stable 5~6% returns a year.