[Interview] "High-Net-Worth Individuals Shopping for JeCoupon Bonds and Samsung Electronics"

Jung Yeon-gyu SNI Samsung Town Financial Center Branch Manager
Maximizing High-Interest Income by Buying Long-Term Bonds
Interest in Long-Short Strategy with Split Purchases of Blue-Chip Stocks at Low Points

[Asia Economy Reporter Lee Seon-ae] "Wealthy individuals are focusing on purchasing low-coupon bonds with significant tax-saving effects." This is what Jung Yeon-gyu, Branch Manager of Samsung Securities SNI Samsung Town Financial Center, said in an interview with Asia Economy on the 16th. Jung explained, "Since interest rates are expected to peak in the first half of this year, high-net-worth individuals are adopting a strategy of buying long-term bonds to secure high-interest yields over a long period."

Jung Yeon-gyu, Branch Manager of SNI Samsung Town Financial Center, explained the investment trends of wealthy individuals, such as bond and stock staggered purchases and long-short funds, in an interview with Asia Economy on the 16th.
[Photo by Samsung Securities]

What wealthy investors particularly pay attention to in bond investments is the tax benefits. With the deferral of the financial investment income tax to 2025, the tax-saving effect can be maximized. Branch Manager Jung pointed out, "Due to the deferral of the financial investment tax, high-rate taxpayers (the wealthy) are concentrating on purchasing low-coupon bonds with significant tax-saving effects," adding, "Low-coupon bonds are currently attractive products compared to deposit interest rates." They buy high-interest bonds to earn stable interest income while purchasing low-coupon bonds, whose prices have dropped significantly compared to the issuance price, aiming to realize capital gains either by price appreciation or by holding until maturity.

In the case of bonds, interest income is subject to a 15.4% interest income tax, but capital gains from trading are tax-exempt. Since capital gains are excluded from interest income tax, they are also excluded from comprehensive income tax. Among bonds currently traded in the over-the-counter market, low-coupon bonds issued during past low-interest periods with low nominal interest rates have significantly dropped in price compared to face value due to rising interest rates, offering ample opportunities for capital gains. Therefore, the proportion of interest income (nominal interest) subject to interest income tax in the total returns from bond investments is relatively low, which can be advantageously used to reduce tax burdens.

Wealthy investors are also actively moving in the stock market. Branch Manager Jung said, "They are actively rebalancing their portfolios from growth and tech stocks to value stocks that generate sales and profits, and particularly adopting a strategy of buying blue-chip stocks such as Samsung Electronics, which is expected to hit a bottom in the business cycle, in installments at low points," adding, "Since stock price differentiation is expected depending on corporate earnings, they are also showing interest in long-short funds."

Investment advice to focus on value stocks with low valuations continues to be issued in the securities industry. Since the beginning of the year, value stocks have recorded higher returns than growth stocks, and this trend is expected to continue for some time. Especially considering concerns about earnings instability, value stocks are seen as an excellent alternative by the securities industry. As this year is unfolding as a negative earnings market with both stock prices and corporate profits declining, stock price differentiation by individual stocks is expected to deepen further, making installment buying of blue-chip stocks and long-short funds emerging as key investment themes for wealthy investors.

Funds employing long-short strategies generally achieved favorable results last year. The long-short strategy involves buying undervalued assets (long) and selling or short-selling overvalued assets (short) to generate profits. Although the returns may be lower than betting on a single upward or downward direction, it has the advantage of reducing volatility and generating stable returns.

This aligns with the results of a survey conducted exclusively by Asia Economy last November targeting 340 high-net-worth individuals with assets over 3 billion KRW at Samsung Securities (refer to the article 'Asked 300 High-Net-Worth Individuals with Over 3 Billion KRW' on the 1st). Six out of ten high-net-worth individuals with assets over 3 billion KRW named 'bonds' and undervalued Korean stocks as their top investment assets this year, pursuing both stability and high returns during the interest rate hike period.

Branch Manager Jung recommended a stock installment buying strategy. He advised, "The dollar-converted KOSPI is in the 1800-1900 point range, so the price burden is not high," adding, "However, an installment buying strategy is effective." He further noted, "Especially this year, stock price volatility may increase depending on corporate earnings, so it is worth considering installment buying focused on blue-chip stocks when short-term sharp declines occur, provided some cash reserves are secured."

He viewed that the China reopening (resumption of economic activities), Lunar New Year (Chunjeol), and the Two Sessions (Lianghui) present opportunities, making China-related investment strategies (China play) valid until the first quarter, followed by an approach centered on IT and automobile sectors as earnings bottoms are confirmed.

Jung, who joined Samsung Securities in February 2000, is well-known as a flagship private banker (PB) at Samsung Securities. From July 2013 to December 2021, he served as the senior PB at Gangnam Finance Center, leading Samsung Securities' rise as a prestigious asset management firm.

Samsung Securities provides 'SNI services' covering financial investment, domestic and international taxation, and real estate to clients with deposited assets of 3 billion KRW or more. In particular, the tax-dedicated service 'My Tax Manager' is one of the most preferred services by clients.