SEOUL: South Korea’s legions of retail traders are piling money into exchange-traded funds (ETFs), particularly those linked to the United States and China, as losses in local stocks prompt them to look abroad for better returns.

       South Korean individuals bought 6.9 trillion won (US$5.6bil or RM23.6bil) worth of ETF products traded on the South Korea Exchange in the six months ended March 31.

       That exceeded their purchases of shares in the Kospi benchmark at six trillion won (RM20bil) for the first time since 2019.

       The three most popular ETF products in this period were all focused on overseas market themes such as Chinese electric vehicles and US tech stocks, according to South Korea Exchange.

       The about-face comes as South Korean stocks have been set back in recent months by a foreign fund exodus amid concern over higher US interest rates and rising oil prices, and a surge in local virus infections.

       The Kospi is among Asia’s worst-performing national gauges this year and has lost almost 9% over the past six months while the S&P 500 Index climbed more than 2%.

       “Investors are hugely interested in overseas markets now,” said Imm Taihyuk, head of ETF management at Samsung Asset Management.

       “In the past, we tried to add mostly Kospi and Kosdaq names when building a thematic ETF product.”

       Mom and pop investors have become a key force in South Korea’s equity market amid the global retail-investing boom seen during the pandemic. Day traders now account for about three-quarters of daily turnover in the local market, with their herd behavior earning them the nickname “ants.”

       Growing interest in ETFs has also prompted a shift in strategy at South Korea Investment Management Co, the nation’s No. 6 asset-management firm, which has in the past focused more on actively managed funds.

       About two-thirds of South Korea Investment’s new products this year will focus on overseas markets, Bae Jae Kyu, chief executive officer at South Korea Investment said.

       “We have to make products targeting retail investors in their 20s and 30s, and the products need to have a global focus because South Korean markets’ return of earnings has fallen significantly behind overseas markets,” he said. “The US will absolutely be the focus.” — Bloomberg

       The S&P 500 Index’s return on equity is currently about 11 percentage points higher than the Kospi’s, data compiled by Bloomberg show. The gap was under seven a year ago.

       Diversification is also a focus for South Korean investors as they are willing to put their money into bonds and high-dividend stocks due to the Kospi’s sluggishness, Imm of Samsung Asset said.

       “With recent market corrections, South Korean investors who piled into the stocks realised that they may have been too aggressive,” he said. -- Bloomberg