Wealthy Koreans look to Indian equities as 'next China' investment

First, it was the US that attracted many South Korean investors looking for higher returns.

And then came China, which ensnared Korean retail investors with the dynamics of its economic power – the world’s second largest.

Now, wealthy Koreans are flocking to India to get even richer. The South Asian country, referred to as the “Next China” by many avid investors worldwide, is siphoning off funds from Korea.

According to industry data, India-focused funds created by Korean asset managers have seen 1.15 trillion won ($881 million) in fresh fund inflows this year, even as long-term Korean investors such as retirement pension funds bask in a gold rush in the Indian equities market.

The money move mostly came from China-focused funds, which saw a fund outflow of 365.7 billion won by Korean investors this year.

The net asset size of Indian stock funds managed by Korean asset management funds has now ballooned to 4 trillion won.

TOP PERFORMER AMONG KOREA’S OVERSEAS EQUITY FUNDS

According to market tracker FnGuide Co. on Monday, 32 Indian equity funds, created by Korean asset managers, saw a six-month return rate of 18.61%, the highest among Korea’s overseas funds.

Over the past six months, US-focused funds posted a return of 7.87%, followed by China (5.4%), Vietnam (4.19%) and Europe (0.55%). Funds that invested in Russia and Japan saw losses, with return rates of minus 2.57% and minus 6.74%, respectively.

Over a longer period, Indian funds’ return rates showed stronger performance. They posted return rates of 34.21% over a year, 47.98% over three years and 149.16% over five years, consistently ranking first.

Industry data showed that India-focused funds never posted negative returns over the past five years on an annual basis.

"While India is classified as an emerging market. It’s not like Vietnam or China. Returns from investments in India have been stable and consistent year after year," said a private banker at an asset management firm in the affluent Gangnam District in Seoul. “India and the US are the two top picks by rich investors here looking for handsome gains.”

INDIA-FOCUSED ETFs MUSHROOM

As India has steadily delivered handsome gains, fund managers are launching more India-related exchange-traded funds (ETFs), which offer a basket of securities for investors reluctant to hand-pick their own shares.

In May, Samsung Asset Management Co. launched Korea’s first Indian-themed ETF, the KODEX India Tata Group, while Mirae Asset Global Investments unveiled the TIGER India Billion Consumer ETF targeting the top 20 consumer goods companies in India.

Earlier this month, Korea Investment Management Co. debuted two active Indian ETFs investing in growth sectors – the ACE India Consumer Power Active and the ACE India Market Representative BIG5 Group Active.

The ACE India Consumer Power Active tracks 15 companies, with home appliance firms and automakers each accounting for 35% of the total portfolio. Healthcare firms take the remaining 30%.

The ACE India Market Representative BIG5 Group Active invests in India’s top five companies – Reliance, Tata, Adani, Bajaj and L&T.

The two funds are Korea’s first active Indian ETFs, where Korean fund managers adjust stock allocations.

"India’s recent growth resembles China in 2006," said Hyun Dong-sik, head of the overseas business at Korea Investment Management. "India is expected to grow at a pace similar to what China has seen in the coming years."

OVERVALUATION UNLIKELY

Of Korean ETFs tracking India’s benchmark stock index Nifty 50, Mirae Asset's TIGER India Leverage ETF posted the highest return at 29.64% over the past six months, followed by the KODEX India Nifty50 Leverage ETF at 28.60%, the IBK India Infrastructure at 26.05% and the KB India ETF at 21.94%.

Koreans’ craving for Indian securities-tracking ETFs has been driven mainly by the strong performance of the Indian stock market on the back of high expectations for the South Asian country's economy.

Alongside the rise in the Indian stock market, overvaluation concerns have also arisen.

Analysts, however, said they expect the Indian stock market to continue to gain momentum, buoyed by the country’s strong economic growth.

According to the International Monetary Fund (IMF), India’s real GDP growth rate is projected to post over 6% annually through 2025.

India is also seen to benefit from a global supply chain restructuring triggered by the US-China trade conflict.

The Indian government is attracting global companies that are shifting away from China by offering them generous subsidies and tax benefits.

Write to Man-Su Choe at bebop@hankyung.com

In-Soo Nam edited this article.