KIC, Korea Teachers eye more China, EM equities

Two of Korea’s big asset owners, Korea Investment Corporation and Korean Teachers Pension Fund, say they intend to boost their investments to emerging-market equities, with a particular focus on China.

Speaking recently at AsianInvestor’s Korea Institutional Investment Forum in Seoul, Kim Sang-joon, head of equity management at KIC, says the $43 billion sovereign wealth fund will double its EM equity exposure over the next few years. Ultimately as these markets grow their share of global GDP, he adds, they should have an allocation commensurate with that to developed markets.

Although he is keen on all of the Bric nations, Kim particularly favours China and India. KIC has a $200 million QFII quota that it intends to put to work, for example.

For the $11.2 billion KTPF, it’s early days: the fund’s only exposure is via a W600 billion ($500 million) mandate to a global equities mutual fund. But that will change, as the fund is keen on China, says Song Joo-min, manager of overseas equity outsourcing.

Given the eurozone crisis, he believes China and EMs generally are the future growth engines. He believes China can continue to grow its GDP by at least 7.5% per annum, given the central bank’s ability to cut interest rates and pro-consumer government policies. As a result, he says KTPF will look to mandate fund managers with China experience.

Chinese equities look cheap, says Shanghai-based Stephen Zhou Xin, head of overseas investments at Fortune SG Fund Management. He notes that for Hong Kong-listed H shares, the 12-month forward price-to-earnings ratio is 8.3x, a 30% discount to its 10-year historical average valuation of 12x. Mainland A-shares, at 11x, are also trading at a discount.

KIC’s Kim agrees the market has little downside potential and plenty of upside. He acknowledges recent concerns about China’s economic performance, but says this is a short-term issue. Over the longer run, it’s an opportunity to buy.

Both China and India have the ability to maintain their superior economic growth rates, he says. KIC will also maintain its position in Brazil, despite short-term declines in commodity prices.

Ruchit Puri, Singapore-based director and CEO of Kotak Mahindra (UK), acknowledges India has been a tough environment of late, but says that over the long run, the nation offers huge growth in many areas of consumption, including telecoms, banking, cosmetics and soft drinks.