Chinese funds are rapidly flowing into the Korean stock market these days to draw the attention of many. Securities analysts are saying that the investment is being made by funds run by Chinese asset management companies.
According to the Financial Supervisory Service, Chinese investors have recorded a net buying in the Korean stock market for four months in a row since November last year. No less than 3,037 billion won has flown into the market during the period alone. In particular, the total amounted to 1,238 billion won in February to set a new record, much higher than the preceding month’s 539.4 billion won. The sum reached 1,777 billion won during the first two months of this year and it is already close to last year’ total at 1,780 billion won.
Under the circumstances, the worth of the shares Chinese investors own in the Korean stock exchange added up to 8,083 billion won as of the end of February to post a 29.7% growth from a year earlier. It is equivalent to 1.9% of the total market capitalization and they are currently ranked 11th in terms of the amount. The financial industry is paying keen attention to the movement of the funds as the size of the inflow is showing some remarkable growth to exercise much greater influence than before on the local bourse. Industry experts are busy trying to define the funds to tell whether the massive inflow will continue and what impact it will have down the road.
Korea Investment & Securities published a report on March 6, saying that the recent trend seems to be being led by qualified domestic institutional investors (QDII) in China. QDIIs are those financial institutions permitted by the Chinese foreign exchange authorities to make investments in overseas capital markets.
“China’s overseas investment is led by its sovereign funds, including the State Administration of Foreign Exchange and the China Investment Corporation, and the QDIIs,” said Lee Su-jung, researcher at the company, adding, “Allowing for the characteristics of each, it’s likely that the investment as of late is driven by the QDIIs.” The SAFE is focusing on low-risk US Treasury bonds and the CIC has decreased its stock investment portion since 2012.
One of the Chinese government’s top-priority goals for its 12th Five-year Plan, which covers the five-year period starting from 2011, is the expansion of overseas investments and it is increasing the proportion of the financial industry in its national GDP to 5% in this context. The number of QDIIs and their sizes are increasing at a rapid pace to meet the policy goal. The number was 109 in all as of the end of January and their combined asset size was US$85.527 billion.
The QDIIs can be divided into banks, insurers and asset management companies. “Banks and insurance companies have their own ceilings when it comes to overseas investment and thus the recent capital inflow is likely to be by Chinese asset management firms,” said the researcher. “By country, Korea accounted for 6.5% of Chinese QDIIs’ overseas investment to rank third as of the end of 2012 while Hong Kong’s percentage had declined continuously from 79.6% to 61.2% between the ends of 2007 and 2012,” she continued, “This implies that Chinese funds are now moving to Korea to be less lopsided to the Hong Kong market, which can be helpful for the Korean stock market to buttress itself.”