[Wriggling Stock Market]② Bonds That Attracted Money Show Slight Recovery, Real Estate Remains 'Uncertain'

Major Deductible Associations' CIOs Assess Alternative Investment Risks in the US and Europe
Government Bond Appeal Declines While Credit Holdings Remain Unstable

The reason major institutions are turning their attention to the stock market is that, among stocks, bonds, real estate, and alternative investments, stocks are currently considered to carry relatively less risk.

According to the investment banking (IB) industry on the 1st, recently, chief investment officers (CIOs) of major mutual aid associations have traveled to various global locations such as the U.S. and Europe to assess the risks of overseas real estate and alternative investments. This was to directly observe and evaluate the local situation as the distress in overseas real estate, especially commercial real estate in the U.S., has been increasing.

A senior official of the Korean branch of the world's largest private equity firm said, "These days, U.S. office buildings are a hot topic." According to him, the value of a 22-story office building in San Francisco, on the U.S. West Coast, plummeted from $300 million (about 400 billion KRW) just before COVID-19 in 2019 to about $60 million (about 80 billion KRW) currently. The price dropped by about 80%. Moody's reported that the U.S. office vacancy rate in the first quarter of this year reached 19.0%, the highest level in 31 years since 1992.

C mutual aid association CIO said, "I met with local operators regarding commercial real estate loans," adding, "There are existing committed funds and some cases under additional review."

D mutual aid association CIO is also assessing the risk of investment defaults during a business trip to Europe. An E mutual aid association official said, "We also sent employees, but as (office prices) keep falling, there is no choice but to watch." He added, "Just like what is happening in the U.S., it should actually happen domestically as well, but the authorities are managing it, so it is quietly passing. In fact, Korea is not in a good situation either."

In particular, the large proportion of alternative investments held by major mutual aid associations is also cited as a main reason why institutions are turning their attention to the stock market. As of the end of last year, the alternative investment ratios of major mutual aid associations were quite high, such as 78% for the Local Government Officials Mutual Aid Association and 70% for the Teachers' Mutual Aid Association. An IB industry official said, "There is nowhere to go but stocks," adding, "For alternative investments, some mutual aid associations have such a large proportion that additional investments are burdensome."

The attractive timing for bond investments is also passing. One institution's CIO explained, "Bonds have already peaked and interest rates have come down once," adding, "The base interest rate does not seem likely to rise further, so investing in government bonds is possible, but government bond yields are not expected to be high, and credit bonds excluding government bonds might even rise, so it is difficult to enter hastily." Another investment officer said, "We have been steadily buying bonds since the second half of last year, but now we hesitate to actively buy," adding, "Credit bonds still carry potential hidden defaults, so caution is needed."

It is still considered a cautious time to actively expand credit investments. If the high-interest-rate environment continues, concerns about economic slowdown may increase, and worries about real estate project financing (PF) defaults remain. Therefore, it is advised to buy high-quality bonds in the medium to short term rather than non-investment-grade bonds. When interest rates rise, long-term bonds are recommended over short-term ones.