The US stock market has long been the prime investment destination for South Korean investors, lured by the dynamics of the global top economy.
With the collapse of Silicon Valley Bank, however, Koreans are moving their money away from the US to emerging markets, notably China and India.
According to market tracker FnGuide, China funds, which cover Greater China, and India funds, have attracted 238.2 billion won ($181 million) and 120.2 billion won, respectively, from Korea’s retail investors, so far this year.
Of 20 regional funds created by Korean asset managers, China and India took the top two posts in terms of value. US funds, coveted by many Korean individual investors last year, saw a net outflow of 227.9 billion won year to date.
With growing market uncertainty in the wake of the SVB incident, coupled with emerging markets’ post-pandemic resilience, Korean money is flowing into China and India, analysts said.
China and India are emerging as Korean investors' next investment targets China’s economy, the world’s second-largest, got off to a solid start this year as consumers went on a spending spree after years of strict COVID-19 restrictions ended.
The country’s economy grew 4.5% in the first quarter from a year earlier, beating market expectations, its government data showed on Tuesday.
According to the International Monetary Fund, China and India are expected to see their 2023 gross domestic product expand by 5.2% and 5.9%, respectively, four times higher than the average growth rate of 1.3% for advanced countries.
The two Asian economic giants are forecast to contribute to world economic growth by 22.6% and 12.9%, respectively, through 2028, the IMF said.
“The US market is struggling with high interest rates. We’re more positive toward China and India, which have greater growth potential,” Pinebridge Investments, which manages 190 trillion won in assets, said in a research note.
The US stock market is struggling with higher interest rates BUY ON DIP
China funds and India funds, launched by Korean asset managers, on average posted return rates of 3.8% and 0.3%, respectively, so far this year – the lowest among major regional funds.
That’s because China has been mired in an ongoing conflict with the US while India has been plagued by market corrections following accounting scandals at big companies.
Analysts now expect China to see a full-fledged economic recovery with the so-called reopening stocks among the market darlings. India, in turn, is expected to see windfall gains by enticing American factories to build factories there amid the protracted US-China conflict.
India’s relatively high birthrate is also expected to push its economic growth higher, analysts said.
The fund that has received the most capital among China funds is TIGER China Hang Seng Tech, an exchange-traded fund (ETF), with 108 billion won in fund inflows so far this year.
ETFs are favored by individual investors
Other notable China-related ETFs include TIGER China Electric Vehicle Solactive ETF (71.6 billion won), KODEX China CSI300 (68.5 billion won) and KOSEF India Nifty 50 (64 billion won).
TIGER China Hang Seng Tech follows the Hang Seng Tech Index, which includes China’s leading tech companies such as Tencent and Alibaba.
TIGER China Electric Vehicle Solactive invests in Chinese companies in the electric vehicle value chain, including Contemporary Amperex Technology Company Ltd. (CATL) and EV maker BYD.
KOSEF India Nifty 50 is a fund that invests in the top 50 Indian blue-chip companies. Among the companies in the portfolio are Infosys, the first Indian company listed on the Nasdaq, and Tata Consultancy Services, a leading Indian consulting firm.
Overall, Korea’s retail investors are increasingly enticed to ETFs, which offer a basket of securities, as they are seen as safer than individual stocks in times of market volatility.
