Monday, August 11, 2014

Capital Exchange: Korean, Chinese Capital Markets Becoming Closer-knit

A bank employee displays both Korean won (left) and Chinese yuan (right). (Photo via Korea Exchange Bank)
A bank employee displays both Korean won (left) and Chinese yuan (right). (Photo via Korea Exchange Bank)
12 AUGUST 2014
Exchange between the capital markets of Korea and China is picking up speed as they consider each other to be highly-attractive markets.
Investors in Korea are looking forward to a high yield with a low interest rate going on and the Korea Composite Stock Price Index (KOSPI) drifting sideways. The Chinese financial authorities are moving ahead with plans for more IPOs and the introduction of preferred stock issuing, and the Chinese stock market is poised to move upward from the box pattern that has continued since 2008. The Shanghai Index gained 11.8 percent during the past three months and the one- and three-month yields of the China funds in Korea have reached 8.85 percent and 11.65 percent, respectively.
In the meantime, Chinese investors are expecting some long-term profits from the Korean stock market, which has been particularly undervalued among emerging countries. According to the Financial Supervisory Service, Chinese funds’ net purchase of Korean stocks increased from 881.2 billion won (US$856.3 million) to 2.208 trillion won (US$2.145 billion) between 2009 and 2013, and amounted to 1.885 trillion won (US$1.830 billion) during the first seven months of this year, which is second only to that by U.S. investors (2.414 trillion won, US$2.344 billion).
The number of Korea-related investment products is on the rise in China, too. For instance, EFund Management is planning to list a KOSPI 200 ETF on the Shanghai Exchange within this year. The asset management firm signed a contract with the Korea Exchange last year to use the KOSPI 200. “Most of the Chinese funds investing in Korea now are institutional investors,” said Index Marketing Team manager Choo Kil-ho at the Korea Exchange, adding, “Once the KOSPI 200 ETF is listed, individuals can also invest in the Korean bourse even with a small sum.”
The capital market exchange is also accelerated by the agreement on direct won-yuan trading, which was determined during President Xi Jinping’s state visit to Korea last month, and the granting of an 80 billion yuan (US$13 billion) RQFII. “The direct trading is likely to result in greater inflow of Chinese funds into Korea,” Shinhan Investment Corporation research analyst Han Bum-ho explained, continuing, “In addition, the RQFII will lead to more products for investment in China, which, in turn, will boost financial exchange between the two countries.”
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