South Korea has been attracting international attention in recent months for various reasons. There has been the impeachment of President Park Geun-Hye, who was indicted this week; the Samsung Group scandal and the trial of chief executive JY Lee; and growing tensions over North Korea and the deployment of the US Terminal High Altitude Area Defense (THAAD) system.
AsianInvestor asked Jeung Jae-ho, chief investment officer of the Korean Federation of Community Credit Cooperatives (KFCCC), for his views on these and other issues.
He has already outlined how the $37 billion fund is continuing to raise its offshore and alternatives allocation, particularly its exposure to property, including tier-two real estate.
Q How is KFCCC positioning in light of uncertainties over US policy and European politics and policies?
A Domestic and international economic policies in the US and Europe have had a significant impact on KFCCC’s allocation of investment assets. KFCCC has preferred the US and UK as priority countries in relation to alternative and overseas asset investment. Most of those assets are in real estate.
But in light of the impact of further likely US interest rate hikes [the latest being in March] and Brexit [Britain’s move to exit the European Union], KFCCC is looking at Chinese equities and Japanese stocks, bonds and real estate for diversification purposes.
We will also look at US high-quality corporate bonds, as we noted that the US economy turned around after the US presidential election last year.
Q What do you think about the Samsung scandal and how it will affect domestic portfolios/asset valuations? Are we now likely to see faster corporate reform in South Korea?
A The recent scandal of the Samsung Group has been a matter of constant controversy, and I do not think there will be a serious adverse impact on the allocation of investment assets or valuation of assets. Domestic and foreign investors have already prepared for a negative outcome.
In fact, we expect the Samsung Group scandal to serve as an opportunity to improve the problems of domestic conglomerates.
Q But both the Samsung scandal and the president’s impeachment will presumably have had a negative impact on foreign investors’ views of Korea?
A These issues are in their final stages, so there will not be much [further] impact on either local investments by Korean firms or foreign investors, especially following the election of the new president in May. There will be a better investment environment across the board, as these issues will be wrapped up.
What will have more of an impact now will be how the new president deals with the deployment of the THAAD [the US Terminal High Altitude Area Defense system, the implementation of which is being accelerated in response to North Korean military aggression].
Q How will the missile system deployment affect investors’ approach?
A Many local investors will take a wait-and-see approach as the new president may adopt different policies. They will reduce their investment activity until they believe the risk associated with it has gone away.
Hence we will look into safer assets globally, such as US corporate bonds and Japanese stocks, and we may reduce our domestic stock holdings [for the time being].
Q More generally, is KFCCC looking at entering any new markets or types of assets?
A Given that the US raised interest rates recently, we consider it is necessary to plan to offset the loss due to investment in fixed income by strengthening profitability through investment in alternatives and offshore assets.
Q Do you have any views the growing hedge fund industry in Korea? Does KFCCC invest in domestic hedge funds? If not, why not?
A The hedge fund industry in Korea is not getting much attention now, and it seems that it will take time to become active. Therefore KFCCC does not invest in domestic hedge funds.
Q What is KFCCC’s view on co-investing?
A KFCCC is always making co-investments with respect to alternatives and offshore assets. Although a single investment is likely to generate a lot of profits, I think it is more efficient to distribute the expected risk of investment through joint investment for stable profitability.
Q Has KFCCC lowered its investment target for the coming year or few years, in light of the low-yield environment?
A KFCCC has lowered its target return on investment as the low-interest-rate trend continues. We will adjust the target rate of return accordingly if factors such as interest rate hikes occur in the future.
Q Is KFCCC likely to put any individual or office in place overseas for investment purposes?
A KFCCC cannot open offices or send employees abroad for investment purposes without the amendment of the law. Currently there is no plan to amend the law.
Jeung Jae-ho will be among the speakers at AsianInvestor's 11th Korean Institutional Investor Forum in Seoul on June 20. Click on the link for more details.