[Why&Next] Overseas Concentration in Public Offering Fund Market... Value-Up Success Needed for 'Mitigation'

Overseas Investment Funds' Net Assets Grow 30% in H1
Relative Weakness of Domestic Stock Market Impact
Value-Up Program Success Expected to Ease Concentration

As the number of individual investors investing in overseas stock markets, including the United States, increases, a trend of overseas concentration is also emerging in the fund market. This was largely due to the relatively sluggish performance of the domestic stock market compared to overseas markets.

Net inflow of 8 trillion won into overseas stock funds in the first half of the year

According to the Korea Financial Investment Association on the 10th, the total net assets of public funds increased by 19.4%, from 348.28 trillion won at the end of last year to 415.9 trillion won at the end of the first half of this year. The total net assets of domestic investment funds rose from 265.49 trillion won to 308.35 trillion won, while overseas investment funds increased from 82.79 trillion won to 107.55 trillion won. While the total net assets of domestic investment funds grew by 16.1%, overseas investment funds increased by 29.9%.

The rapid growth of overseas investment funds is mainly driven by returns. From the beginning of this year to June, the KOSPI rose by 5.4%, and the KOSDAQ index fell by 3.0%. During the same period, the NASDAQ index rose by 22.1%. The strong performance of U.S. tech stocks, including Nvidia, contributed to the significant rise in the NASDAQ index. The SENSEX, the representative index of the Indian stock market, increased by 11.0%.

According to FnGuide, among public funds with assets under management of over 10 billion won, overseas equity funds showed excellent performance. The 444 domestic overseas equity funds recorded an average return of 12.3% in the first half of the year. The Korea Investment Global AI & Semiconductor TOP10 UH (S-R), which attracted over 70 billion won since the beginning of the year, achieved returns exceeding 40%.

Oh Kwang-young, a researcher at Shin Young Securities, explained, "As of the end of May, looking at the monthly fund returns by region, global funds rose 9.81% since the beginning of the year," adding, "Funds have been flowing in every month since June last year, showing an increase for 12 consecutive months." He continued, "With the strong North American stock market this year, the monthly inflow amount has increased, and the increase in assets under management during the same period since the beginning of the year reached an all-time high."

Kim Hoo-jung, a researcher at Yuanta Securities, analyzed, "In June, the monthly net inflow into overseas stock funds exceeded 2 trillion won," adding, "Investments were mainly made in the Philadelphia Semiconductor Index, U.S. tech stocks, S&P 500, and artificial intelligence (AI) sectors in the U.S. stock market." He also said, "While more than 8 trillion won flowed into overseas stock funds in the first half of the year, domestic stock funds saw a net inflow of only 75.3 billion won during the same period."

Indian funds, which have recently attracted investor interest, are also growing rapidly. On a monthly basis, they have recorded an increase for nine consecutive months from September last year to May this year. They increased by about 455 billion won through May of this year.

Will public offering stock funds revive? Success in value-up needed to resolve overseas concentration

Among domestic investment funds, public offering stock funds showed meaningful growth. The assets under management of public offering stock funds increased by about 1.3 trillion won since the beginning of the year. This was influenced by the influx of market funds into the initial public offering (IPO) market in the first half of this year. Public offering stock funds are funds that participate in public offering subscriptions as institutional investors to generate profits. Along with the government's promotion of the value-up program, interest in dividend investing is also growing, leading to increased attention to dividend stock funds.

However, despite this situation, the asset management industry expects that the growth of overseas investment funds will continue to be more prominent than that of domestic investment funds. This is because the number of individual investors turning their attention to overseas stock markets is increasing, and the implementation of the financial investment income tax (FIIT) is expected to trigger capital outflows. The amount of U.S. stocks held by individuals has exceeded 90 billion dollars (124.56 trillion won). As interest in stock markets in the U.S., Japan, and India grows, the launch of overseas investment funds is also expected to increase.

Lee Sang-won, head of product strategy at Korea Investment Trust Management, said, "We have expanded our product lineup for overseas big tech (large information technology companies) and growth stocks, resulting in high returns," adding, "We plan to supply leading products in line with macro changes and industry trends going forward."

The financial investment industry expects that if the government’s value-up program resolves the 'Korea discount' (domestic stock market undervaluation), the phenomenon of domestic funds flowing into overseas stock markets will ease. However, there are still hurdles to overcome before full implementation. Ko Kyung-beom, a researcher at Yuanta Securities, said, "On the 3rd, the government released the ‘Dynamic Economy Roadmap’ as a follow-up announcement to the value-up index meeting held in the first half of the year," adding, "However, since this involves tax law amendments requiring legislative approval, and the ruling and opposition parties are sharply divided on some issues, it is difficult to be optimistic about approval."

The implementation of the FIIT is also a key issue to watch in the second half of this year. Although the government and ruling party are demanding the abolition of the FIIT, opposition from the opposition party is strong. Labor Gil, a researcher at Shinhan Investment Corp., expressed concern, saying, "If tax fairness is achieved for overseas stock investments, considering the long-term expected return gap between the U.S. and Korean stock markets, it could lead to mid- to long-term capital outflows by individual investors."