Headwinds get stronger for Korean equity funds

Latest News

The ongoing Japan-Korea trade dispute has put all actively-managed Korean equity funds underwater this year.

Korean equity funds have not performed well for years. For the last three years, cumulative returns of the Korea equity fund sector for funds registered for sale in Hong Kong, was -16%, according to FE data.

Looking at Korea funds year-to-date, the eight actively-managed SFC-registered funds have all had negative performance with a pronounced drop in July. Not one of the funds beat the MSCI Korea, which is also negative (-9.12%) year-to-date.

Strong headwinds started last month, when Japan’s Ministry of Trade tightened guidelines on exports to South Korea for key materials such as fluorine polyimide and high-purity hydrogen fluoride for the smart phone and chip industries.

Japanese authorities claimed the restrictions were due to lax controls on South Korea’s export of sensitive products, but it is widely assumed that the move was linked to an historical dispute.

The restrictions are expected to have a meaningful impact on South Korea’s core industries of semiconductor and LCD screen production.

It is no surprise that the Korea equity funds hold Samsung (75% of its profit is from the semiconductor business) in the top ten and have ample exposure to IT. For example, the worst performer, Barings Korea Trust, has the top sector weighting in information technology, with 24%. Samsung Electronics is its top holding, accounting 9.51% of the portfolio, the factsheet noted.

The US-China trade dispute already has had consequences around Asia, where many countries are linked to mainland China via product supply chains, according to Barings.

“In overall terms, Asian exports have declined substantially largely due to their role in China’s supply chain. Singapore exports, Korean exports, Taiwanese exports, Chinese exports, they all tumbled down. It looks absolutely atrocious,” said, Khiem Do, head of Greater China investments, FSA previously reported.

Nonetheless, Asia-Pacific ex-Japan has been the better bet than a single country focused fund:

Fund

Performance (year-to- date)

Volatility (year-to-date)

Index MSCI AC Asia Pacific ex Japan

4.86

13.98

Index MSCI Korea

-9.12

 

20.24

JPM – Korea Equity

-9.12

16.40

JPMorgan Korea

-9.62

15.97

Sector HKM Equity – Korea

-11.72

16.00

Schroder ISF Korean Equity

-13.19

17.41

Allianz Korea Equity

-13.79

15.42

Mirae Asset Korea Equity

-14.43

15.91

Haitong Korea Equity Investment

-14.90

15.64

Invesco Korean Equity

-15.25

15.99

Barings Korea Trust

-15.47

17.50

Source: FE. In US dollars. Year-to-12 August

 

Actively-managed Korean funds vs category, MSCI Korea and MSCI AC Asia Pacific ex-Japan, year-to-date

Source: FE Analytics. Year-to-date cumulative returns in US dollars.

Tags: |

Leave a Reply