Korean investors flock to major emerging markets on economic concerns

[Photo by MK DB]

South Korean investors are flocking to major emerging markets such as China, India and Brazil this year as investment risks have increased with bank collapses in the U.S. and Europe.

Brazil funds, in particular, are delivering one of the highest returns among emerging market funds amid economic uncertainties.

According to financial data tracker FnGuide Inc. on Monday, the average return of 10 Brazil funds with total assets of 1 billion won ($745,990) was 6.06 percent last month and monthly return 7.46 percent, topping the list among region and country funds. India funds also had a fairly high return of 6.17 percent in the last three months.

Brazil funds seemed to act as a safe haven with strong performance last year. But their rate of return dropped rapidly as former Brazilian President Jair Bolsonaro failed to be reelected in the presidential election in October and political instability ensued with his supporters barging into the national congress, presidential palace and courts.

Brazil’s Bovespa Index fell as much as 34 percent to 109,775 in a month from 113,624 in October. It rose to 114,270 on Jan. 25 but slipped 13.5 percent until the end of March, with investments in the country delivering lower returns than other emerging market funds.

Brazil funds, however, started gaining stability at the end of March when the Brazilian government unveiled new fiscal rules aimed at limiting the annual increase of government expenditure to 0.6 percent to 2.5 percent and raising it only up to 70 percent of the real net income growth over 12 months.

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The return on funds investing in Brazil rose again after March as Bovespa Index rose more than 10 percent on belief that the new rules will boost the country’s financial stability and sustainability. Funds investing in Brazilian stocks such as Mirae Asset Brazil Industry Representative Securities Feeder Investment Trust 2-Equity and Shinhan Brazil Securities Feeder Investment Trust H - Equity have performed well with around 10 percent return for the past three months.

The size of China funds, in the meantime, increased by more than 270 billion won since the beginning of this year, according to FnGuide. That of India funds also increased by nearly 250 billion won during the period amid growing demand, while fund assets for major countries or regions such as the U.S. and Europe declined by 397 billion won and 12.2 billion won each.

China funds, despite stagnant returns, are attracting steady investments. Investors appear to be buying at the low point as economy is expected to recover with the resumption of economic activities. The size of Fidelity China Consumer Fund, for example, has increased 18.5 billion won from the beginning of this year. The average return of China funds in the last month was minus 6.34 percent and even lower at minus 9.5 percent in the last three months.

“The economy is certainly recovering but at a slow pace, and economic indicators are also in good shape,” said Park In-geum, an analyst at NH Investment & Securities Co. Chinese retail sales rose 10.6 percent on-year in March, recording a double-digit increase for the first time in two years. Some even predict that China’s second-quarter gross domestic product will grow 7 percent despite concerns over a global economic slowdown.

Funds investing in India, a major emerging market that is expected to grow significantly this year, are also increasing in size on the back of its high returns. According to Korea Exchange, Mirae Asset Tiger Synth-India Leverage ETF, which tracks double the performance of the Nifty 50 index, had a return of over 13 percent in the last three months.