The Kospi index of blue-chip Korean companies will hit 2,000 by the end of this year, predicts Kim Young-il, chief investment officer of domestic equities at Korea Investment Management (KIM).
KIM is the rebranded name of Korea Investment Trust Management Company, also known as KITMC. With $17 billion of assets under management, it is the fifth biggest Korean fund house, and a leader in domestic equities.
Since KIM's equity fund has outperformed Kospi by at least 5% in the past, its expected annual return for the next year will be 20-25%, says Kim. He says Korea's equity fund market will grow by at least 2-3% annually for the next couple of years from its current $58 billion market capitalisation, despite slow growth in the global economy. He aims for KIM to boost its equity fund market share from 11% to 14% over the next few years.
Kim's equity division manages about $7.15 billion. Among its more successful strategies is one covering the Samsung Group (with $3.75 billion of AUM) and another covering the power sector (up 34% year-to-date).
The Korean stock market is set to rise for several reasons, argues Kim. The baby-boomer generation faces retirement in five or six years and will demand equities to create financial security. The corporate pension system is very young and growing. Many companies are globally competitive and the banking system is sound. Finally, many people believe local real-estate prices are set to decline over time.
He favours stocks that can benefit from growth in Asian emerging markets, particularly China, either directly from economic expansion or from an appreciating renminbi.
Given his prediction that the Korean market is set for a multi-year bull run, the funds industry needs to develop products with a longer time horizon, for both retail and institutional investors. He thinks the government can help by giving tax benefits to long-term equity funds and investments.