Asset Management Association of Korea

Transcription

1 COUNTRY REPORT KOREA Asset Management Association of Korea 1. Economic and Financial Background 1) General economic development Korea s GDP grew by 5.0% in on a preliminary basis, slightly lower than the 5.1% growth in. In spite of the appreciation of the Korean currency and soaring oil prices, exports rose by 14.2% year-on-year to USD378.9 billon. Meanwhile, imports increased by 15.0% year-on-year in and benefited mostly from the appreciation of the Korean won against the US dollar. The unemployment rate declined to 3.1% from 3.3% in, while the consumer price index increased by 2.2%, the same rate of growth as in the previous year. 2) Financial environment The yield on 3-year treasury bonds rose by 82 basis points to 5.74% as of the end of from 4.92% at the end of the previous year. The KOSPI 1, which recorded a record high closing level over 2,000 points in October before experiencing a correction thereafter, closed at 1, points at the end of. The Korean stock market appeared to have been less affected by the sub-prime crisis that stemmed from the US mortgage market. 1 Korea Composite Stock Price Index (KOSPI) is a representative indicator in the Korean stock market. 22 nd IIFA Annual Meeting Montreal Oct 1

2 < Major Economic and Financial Indicators> Economy Year (end of) GDP Growth (%) GDP (p) Per Capita GNI (USD) 12,720 14,162 16,431 18,401 20,045 Gross Savings Ratio (%) CPI (yoy, %) Unemployment Rate (%) Finance Yield on CP (91 days, %) Yield on Treasury Bonds (3 yrs., %) KOSPI (Point) Trade and Foreign Exchange Imports (p) Exports (p) Trade Balance (p) Current Account (p) Exchange Rate* (KRW/USD) 1, , Foreign Currency Reserves * All Korean currency figures in this Country Report have been translated into US dollars based on an exchange rate of KRW1,000 per US$1. (Source: Bank of Korea, Ministry of Finance and Economy) 2. Key Trends in Investment Flows and Assets under Management 1) Total assets Despite the correction in the stock market, the total net assets of investment funds have continued to grow and the total outstanding amount recorded USD359.5 billion as of the end of June, an increase of 38.6% (USD100.1 billion) over the end of June. During the same period, the total amount of equity funds increased by 123.0% (USD78.4 billion) to USD127.5 billion helped in particular by rising stock prices until the end of October and active investment by retail investors in regular savings funds. Also hybrid funds recorded an increase of 9.6% (USD4.1billion). Money market funds (MMFs), which had suffered a decrease during the first half in, recovered to total USD70.9 billion. In contrast, the assets of bond funds continued to decrease for the second consecutive year and recorded USD41.0 billion, a decline of 12.3% (USD5.8 billion). Most investment funds are contractual-type and these accounted for 95.6% of total assets at the end of June. Corporate-type funds accounted for only 4.4% of total assets, a drop of 0.2 of a percentage point from a year earlier. 22 nd IIFA Annual Meeting Montreal Oct 2

3 <Changes in total net assets> <Percentage by fund type> Others 18% MMF 22% Bond 18% Equity 25% Hy brid 17% 0 (source: AMAK) 2) Percentage of Securities Holdings to Market Capitalization (a) The stock holdings of investment funds as a percentage of the total listed amount of stocks by market capitalization increased to 14.5% as of the end of June from 8.8% a year earlier. (b) The bond holdings of investment funds as a percentage of the total amount of listed bonds by market capitalization decreased to 7.7% as of the end of June from 9.9% a year earlier. 3) Trends concerning international investment funds (a) Onshore Funds exclusively for Foreigners (OFFs) As of the end of June, the assets of OFFs recorded USD624 million, a decrease of 23.2% (USD188million) compared with June. (b) Overseas Investment Funds (OIFs) OIFs, which are established by domestic fund management companies to invest overseas, have gained favorable attention as investors seek to diversify their investments. Furthermore, a tax exemption for OITFs was introduced from June that excluded from tax capital gains generated from foreign equity investments. With the increased popularity of OIFs, their net assets amounted to USD74.9 billion as of the end of June, an increase of 54.4% (USD26.4 billion) over the end of June. 22 nd IIFA Annual Meeting Montreal Oct 3

4 <Trends of OFFs> <Trends of OIFs> (USD Million) 3,500 3,000 2,500 2,000 2,132 2,415 3,173 2, , , (source: AMAK) (c) Offshore Funds 22 nd IIFA Annual Meeting Montreal Oct 4

5 Assets of offshore funds, which are set up outside Korea by foreign fund management companies and registered with the Financial Supervisory Service for sale in Korea, decreased by 64.8% (USD8,621 million) to USD4,692 million as of June. The growing popularity of OITFs and bearish global equity markets are considered to be the main reason for the decrease in assets of offshore funds. <Trends of Offshore Funds> (USD Million) 14,000 13,313 12,000 10,000 8,000 7,458 6,000 4,348 4,000 2,326 1,793 2,000 4, nd IIFA Annual Meeting Montreal Oct

6 3. Regulatory and Self-regulatory Developments (including tax) There have been several important developments in Korea during the July ~ June period. First, as fund products have gained popularity among retail investors, the importance of the ethics and fiduciary duty of fund managers has increased. In this context, AMAK has improved the conduct rules and ethical codes for fund managers. In addition, AMAK has strengthened the requirements for fund managers to maintain their licenses. By doing so, AMAK intends to enhance the level of fiduciary duty in order to keep up with the demands of investors. Second, with the increase in the number of retail investors, the importance of advertising and promotional materials for funds has been increasing. In Korea, advertisement screening, a self-regulated process undertaken by AMAK, has been delegated to AMAK from the financial watchdog under a revised enforcement decree. Accordingly, even non-members of AMAK must comply with the screening procedures of the association. Also, all types of advertising materials including those for newspapers, TV, and the internet should receive pre-approval from compliance officers before being submitted to AMAK. The number of advertising materials that received approvals from AMAK increased by 105.6% to 3,518 in from 1,711 in. Third, the tax exemption rule for OITFs was adopted in July and led to a dramatic increase in investments in OITFs. Under the adopted rule, capital gains generated from foreign equity investments are exempt from tax for domestic investors. The main purpose of this rule change was to induce investors to invest abroad, thereby easing the rate of appreciation of the Korean currency. Over the past three years, the Korean currency had been appreciating strongly, and the government was worried about the impact of the appreciation of the Korean currency on the Korean economy, especially on exports. Along with the boom in global markets before the sub-prime mortgage crisis, this tax benefit contributed to an increase in the assets of OITFs, which recorded USD74.9 billion as of the end of June. Fourth, the investment objects of funds have been expanded; for example, investment was allowed in derivatives linked securities (DLS) issued by foreign institutions. In addition, the restrictions on sales of offshore funds in Korea have been eased. Domestic sales of offshore funds investing in real estate, commodities, and other funds have been permitted. Fifth, an investor protection scheme is in place to impose regulations on risk diversification, etc., while regulations for managing offshore funds in Korea have been improved to the same level as that of the EU Directive (UCITS ). Also, in order to prevent unreasonable arbitrage, forward pricing for MMFs sold to retail investors was introduced in March while that for MMFs for institutional investors was introduced in July. Sixth, the Capital Market Consolidation Act was passed in July and is scheduled to be implemented from February The purpose of the act is to reformulate the legal framework governing the 45-year old Korean capital market, which was launched with the enactment of the Securities & Exchange Act in 1962; to facilitate the capital market playing a pivotal role in achieving two of the national policy goals, i.e. sustainable economic growth and becoming a Northeast Asian financial hub; and to revamp the existing regulatory system based on the principle of positive-listing and sector-by-sector division. 4. Corporate Governance & Fund Governance major developments With the growing importance of the voting rights of funds, AMAK released the Guideline for Excising Voting Rights of Asset Management Companies. Although this guideline is not mandatory for asset management companies and asset management companies can decide whether or not they adopt it, AMAK believes that it will enhance transparency in the exercise of voting rights by asset management companies and related procedures. 22 nd IIFA Annual Meeting Montreal Oct 5

7 5. Product Developments major changes Regular Savings Products (RSPs) have maintained their popularity since. For example, the subscription amount increased from USD34.5 billion in June to USD73.6 billion in June, a growth rate of 113.3%. Equity funds accounted for about 89.8% of RSPs as of the end of June. Banks have played an important role in sales and accounted for 76.1% of total sales of RSPs in June, up from 74.1% in the same month of last year. Although multi-class funds were introduced in, they have not been activated yet in Korea; however, online-class funds, which are mainly sold through the internet, are becoming popular these days. Key Facts, which contain the key facts about a fund within one or two pages, were introduced in May so that now investors receive a full prospectus along with Key Facts at the time of purchase. From this year, High-Yield Products have been permitted to invest in securities with any type of credit rating, while other funds have been permitted to invest in securities with a credit rating of triple B or higher. 6. Other Major Issues and Developments 1) Establishment of Korea Investors Education Foundation The Korea Investors Education Foundation began operations from November under the regulatory body in order to enable more effort to be made toward fund investors. The paid-in capital of the foundation is USD40 million. The background for the education foundation is that, first, asset management is becoming more important among Korean people since Korea is considered as one of the most rapidly aging societies among OECD nations; and, second, with the popularity of regular savings funds among retail investors and the introduction of corporate pension plans, investor education is becoming even more important. 2) Activities of AMAK AMAK has played an import role in improving disclosure as more retail investors have needed greater disclosure and more information about funds. AMAK has developed its website so that it is more easily accessible and understandable and contains a wider range of information. In particular, investors are able to compare funds through AMAK s website, which provides details about fees and expenses, yields of funds, etc. Also, through AMAK s website, investors can obtain information on asset managers such as financial statements, management indicators, etc. as well as information on funds such as the prospectus, portfolio management report, etc. 22 nd IIFA Annual Meeting Montreal Oct 6