[Interview] Korea savings funds see UK asset price drop after Brexit, awaiting buy timing

South Korea’s key savings funds have decided to put on hold investments in Europe shortly after the Brexit vote on the prospect of a further decline in UK asset values, but they are on the watch for bargain hunting of stocks and property in Europe and see little impact on Europe’s infrastructure.

The Korea Economic Daily interviewed senior investment managers of the country’s top five savings funds on June 27 and 28, after the Brexit decision. They provided the following comments, after reviewing investments in their respective weekend meetings.

▶MMAA had bet on Brexit decision; sees little impact on Europe infrastructure

Sang-ho Lee, the chief investment officer of the Military Mutual Aid Association (MMAA):

“A week ahead of the Britain’s referendum, we had cashed in 10% of our total stock investments at home and abroad (about 1 trillion won), worth 100 billion won ($86 million), on the prospect of the Brexit decision. Now we are on the watch for a timing to buy back stocks.”

“We had focused on the fact that the recent election trends in Europe showed a significant difference from the “quantitative” public opinion results. We thought there would be a high possibility that those supporting the “Leave” had lied in the public surveys. Prior to the Brexit vote, we invested about 100 billion won in U.S. bonds which are now gaining about 20 basis points in valuation.”

“The election results will be unlikely to have big repercussions for the whole EU market, but assets in Britain. In particular, it will have little impact on Europe’s infrastructure investment market in which South Korean investors are highly interested. MMAA has already carried out a substantial amount of overseas alternative investments set for this year, so we are not in a situation we have to decide on whether to continue the investments or not immediately.”

▶POBA sees selective investment opportunity from office relocation within Europe

Dong-hun Jang, the CIO of the Public Officials Benefit Association (POBA):

“The size of our alternative assets invested in Britain through Europe blind funds, etc. is as small as about 2 billion won. On equities, the exposure of the MSCI index-tracking funds to Britain, in which we invested, is also minimal. Across Europe, we have invested about 200 billion won.”

“It is not easy to make a post-election prediction about the investment environment. It is not as big a shock as the global financial crisis in 2008. It may be a short-lived shock as was seen last January and February. Now may be an opportunity to increase investments. On the prospect of a mild global economic recession this year, we had withdrawn from overseas ETFs and held them in cash. On both (June) 27 and 28, we carried out investments in overseas ETFs again. We recently have made a commitment to blind funds (of a consortium of CBRE Global and IGIS Asset Management) to invest in office buildings in five European countries. We expect demand for offices in European cities, except for London, would rather increase. Together with CBRE, we are looking to cities that will benefit from the office relocation from London. It is sure that we are not in the stage of avoiding investments in Europe because of Brexit.”

▶KTCU puts Europe investments on hold for time being

An alternative investment official of the Korean Teachers’ Credit Union (KTCU):

“It is inevitable to hold off investments in Europe we were studying, for the time being. It is difficult to say how long exactly the “for the time being” will be. To carry out investments, we have to assess the timing when market fluctuations will be big during the two-year negotiation period.”

“Upon our assessment over the weekend, our exposure to the unhedged pound was about 90 billion won. The impact is not significant, compared to our total asset size. After the Leave decision, the dollar and the Australian dollar edged up, inflating the current valuations of our overseas alternative investments in aggregate. As time passes by, alternative asset values in Britain and Europe will be likely to fall, which may open an investment opportunity. After the global financial crisis in 2008, South Korean institutions went investing as asset prices in the U.S. dropped, and achieved high returns.”

▶SEMA holds off commitments to Europe real estate funds

Du Yeong Jeong, the CIO of the Korea Scientists and Engineers Mutual-aid Association:

“We had sold high-beta stocks in early June. Now is a buy timing. The impact on alternative investments is not negligible. On long-term investments, the chances of incurring losses became higher. On overseas property investments, however, we had done currency hedging in compliance with our principle. To our relief, we have no exposure to property in London.”

“We put on hold a Europe property fund that we were studying. Britain will take about two years of negotiations to leave the EU eventually. We worry about the consequent effect. But we do not expect it will lead to the collapse of the EU system. Asset values in Britain will decline, but other European countries may benefit from it. Our property investments already made in Europe will not be a big problem because they are based on rental incomes. In particular, our investments in Europe’s infrastructure, on which we expect (government) policy to remain consistent, will have little to do with the Brexit decision. Large-scale property transactions such as large-sized office buildings will be likely to contract. It is a decision-making time to divert some investments earmarked for Europe to the U.S. and other countries.”

▶PMAA sees opportunity from Brexit in property, stocks

A source of the Police Mutual Aid Association (PMAA):

“We hold assets in Britain such as distribution center and bonds. We would incur losses from the investments, but our exposure is not big enough to worry about. Our risk management committee agreed that the Brexit would rather provide an investment opportunity. Depending on political steps to be taken in Europe to calm nerves, stocks may go up. So there would be a buy timing prior to them. Although investments in Europe may contract across the board, there should be a buy timing in the property sector. The key will be interest rate and forex rate movements.”

By Dae-hun Kim

Daepun@hankyung.com