Investing in the Korean Market

SEOUL, South Korea -- Korea has gone from an impoverished war-torn nation to a global market leader in just over a generation and experts predict that the country will sustain substantial growth in the future.

Korean Stock Market

The Korea Exchange (KRX) is responsible for operating the Korean stock market. The KRX has 3 market divisions: KOSPI, KOSDAQ and derivatives.

KOSPI: The Korea Composite Stock Price Index is more commonly known as the KOSPI and often compared to the Dow Jones in the US. KOSPI is considered the representative list of companies publicly traded companies in Korea. As of today there are about 800 companies listed on the KOSPI. There are many KOSPI indexes from those that track certain industries, to those that track small, medium or large cap companies listed on the KOSPI, but the “KOSPI 200” is Korea’s most well-known index and is the main benchmark that is used to gauge the overall performance of the Korean economy, and it is one of the most widely traded indexes in the world.

KOSDAQ: The Korean Securities Dealers Automated Quotations is more commonly known as KOSDAQ. KOSDAQ has about 1,000 small and medium sized businesses and start-ups listed on it. KOSDAQ is considered much more risky than KOSPI. It is often compared to NASDAQ in the US.

Derivatives: The Derivatives Market Division of the KRX trades in futures and options. Korea’s futures and options market is one of the busiest in the world. Futures and options are contracts that help you hedge against fluctuations in an underlying asset, including: Korean stock market indexes, individual stocks, interest rates, currencies, and commodities.

Investment Options

You can invest directly in individual Korean stocks or you can invest indirectly in the Korean stock market through funds and other third-party investment products.

Direct Investments:

It is possible for you as a foreigner to invest directly in domestic companies that are listed on the KOSPI, KOSDAQ or derivatives.

To do this you just need to visit any asset management or securities company (like Shinhan Investment Corp., Samsung Securities, Daewoo Investments, Mirae Asset, etc.) in Korea with your passport or Alien Registration Card to set up an account. Please note that if you do not have an Alien Registration Card, the procedure will be more complicated and there will be some limitations on your investment options.

The challenge with this type of investment as a foreigner is that it is difficult to find relevant, up-to-date information on Korean companies in English. Korean-speakers investing in the same stocks will have an advantage over you because they will know about pertinent factors before you do.

Indirect Investments:

You can invest indirectly in the Korean stock market through Korean won-denominated funds. This can be done through your local bank with either your passport or your Alien Registration Card. Your bank is a distributor of these funds and will sell funds from several different asset management or securities companies. A few examples of these funds include:

Fund: You can invest in a variety of Korean won-denominated funds that track the KOSPI or the KOSDAQ. The minimum initial investment in a fund is usually 100,000 KRW and there are no minimum terms of investment. Funds are considered high-risk investments because your principal is never secured. There are so many types of funds that are structured differently to give you a wide variety of ways to invest in the Korean market. To give you an idea, here are a few types of funds that are available at most banks:

-Funds that invest in the KOSPI 200 Index (top 200 companies that are listed on the KOSPI)
-Funds that invest in a combination of Korea’s biggest conglomerates that are listed on the KOSPI
-Funds that invest in undervalued companies that are listed on the KOSPI
-Funds that invest in a combination of “representative companies” from the KOSPI that are seen as representing their industry in Korea
-Funds that track the performance of just one conglomerate and its many subsidiaries that are listed on the KOSPI
-Funds that invest in companies that are listed on the KOSDAQ.

Equity-Linked Security (ELS): An ELS is a structured fund that invests in a combination of domestic stocks and / or domestic or international indexes. Once the ELS reaches the pre-designated target, the ELS is closed and your principal and profit are automatically deposited into your bank account.

The minimum investment in an ELS is typically 3 million KRW and the minimum term is usually 3 years (although this can vary by product and bank). ELS are considered risky investments because the principal is not insured, but of course higher risk means higher potential return!

ELS are issued by Securities Companies and sold by banks, but are not always available so ask your teller for more details.

Equity-Linked Deposit (ELD): An ELD is a bank deposit, but the interest rate you will receive on that bank deposit is linked to a stock market index (such as KOSPI) or a certain company’s stock performance and is decided at the end of the deposit period.

Your principal is KDIC insured (up to 50 million KRW per person, per bank).The minimum investment in an ELD is usually 3 million KRW and the minimum term is usually 1 year. Of course, these minimums and other terms may vary by product and by bank.

ELDs are issued by your local bank, but are not always available so ask your teller for more details.

These are just a few of the many options that are available to you during your time in Korea. Ask your teller for more information and start investing today!

Michelle Farnsworth is an 8-year resident of Korea who is currently the Foreign Client Relationship Manager at the Shinhan Bank Seoul Global Center – the first and only bank branch in all of Korea that is exclusively dedicated to serving foreigners and foreign companies. Please visit the “Shinhan Bank Seoul Global Center” on Facebook for more information or contact Michelle directly at farnsworth@shinhan.com.

Please note that the banking information provided in this article is based on Shinhan Bank policies and may not be applicable to all banks in Korea.

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