Deep-pocket investors prefer long-term bonds to benefit from high rates

Park Kyunghee, senior executive vice president of Samsung Securities [Source : Samsung Securities]

Demand for long-term bonds are increasing, especially from high-net-worth individuals, as investors with surplus of cash are taking advantage of the recent hikes in interest rates, Park Kyunghee, senior executive vice president of Samsung Securities Co., said in a meeting with Maeil Business Newspaper on Jan. 2.

Last year, interest rates surged and investors took great interest in short-term bonds to earn higher interest. But this year, a new investment strategy is emerging, with investors trying to get ahead of others by purchasing cheaper long maturity bonds that have seen prices dip and gain trading profits.

“Bond assets amid high interest rates will drive the market in the first half of this year,” said Park, who is Korea’s first-generation high-net-worth private banker (PB) and currently oversees about 300 trillion won in assets from high-net-worth individuals and institutional investors. “As good bonds offer higher interest rates than bank savings, you can even expect trading profits from bonds later on. For stocks, the most effective strategy would be to see the stock market bottom out and start buying high-quality stocks in the second half.”

Park said she has her eyes on long-term bonds because investors can aim for high interest rates and trading profits at the same time, adding that “If the U.S. Federal Reserve’s interest rate hike ends this year and the interest rate hits a peak, bond prices are likely to go up.”

Bond profits include interest income and trading gains. The price of long-term bonds, with longer maturities, tends to be volatile and have fallen greatly with rising interest rates. If interest rates trend downward this year and bond prices rise, investors can benefit from a large trading margin. The government’s recent decision to postpone the adoption of investment income tax for two years adds to the attractiveness of bonds, as the tax exemption on bond trading gains will stay for the time being.

“It is true that you can’t expect similar rate of return seen during high market liquidity in the past,” Park said. “I can be sure about one thing. Now we should look at products with high interest rates.”

[Photo by MK DB]

There’s a huge demand waiting to buy bonds after confirming the end of interest rate hikes and the economic downturn hits bottom. Park sees this high interest rate environment, the first in 20 years, as a turning point that will determine investment paths for the next few decades.

For the stock market, she pushed for the “Buy the Sinking Spell (BTS)” strategy. It refers to a strategy in high liquidity market to buy high-value stocks that have fallen excessively instead of technology and growth stocks that have raised their corporate value to the maximum.

“We need to assess if the companies’ values are reasonable in the eyes of the market amid uncertainties such as economic recession and geopolitical risks,” Park said. “Stock prices will recover in the case of high-value stocks with solid earnings performance during challenging times.” Companies that can benefit from China’s reopening with the nation’s economic activities back on track are likely to perform well, according to Samsung Securities Research Center.

Park advised investors to listen to experts during difficult times. “They need advice from professional analysts as to which sectors to bet on and which industries are good looking,” she said. “Not all stocks will go up altogether any more. I think investors should also seek partners who are willing to grow together with customers in asset management.“

Park joined Samsung Securities in 2006 and was named “Master PB” in her first year after joining the company. She climbed up the ranks in her third year after gaining market recognition at seminars and products targeted at high-net-worth individuals. Since 2018, she has led the SNI Office and expanded the service to high-net-worth individuals nationwide and launched the “Family Office” service for investors with assets of more than 100 billion won in 2020.