Investors bet money on 'unification fund' despite uncertainty in N. Korea

By Kim Eun-jung

SEOUL, May 27 (Yonhap) - Funds investing in equities that would benefit from a unified Korea have attracted money even during times when investment trusts were selling shares to lock in gains from recent rallies, data showed Tuesday, reflecting some level of confidence despite uneasy inter-Korean ties.

President Park Geun-hye, calling unification of the two Koreas a "bonanza" in her New Year's address this year, has announced various benefits that would go to North Korea when cross-border trust and relations build up. The two Koreas held their first high-level talks in many years in mid-February to allow reunions for families separated by the 1950-53 Korean War.

The warming ties quickly turned sour after South Korea and the United States held their annual military drills between March and April despite Pyongyang's warnings and provocations.

Still, investors seem to have bought into the idea, putting their money into unification-tied funds even when trust funds have recently turned to selling sprees.

According to fund evaluator KG Zeroin, 34 billion won (US$33.2 million) have flooded into the two unification funds from March 13-May 23, with 10.3 billion won being raised from May 1-23.

In the same period, 996 billion won had drained out from theme-based stock funds and 558 billion won from equity-linked investment products.

Since its debut on March 13, "Shinyoung Marathon Unification Korea Stock Fund" by Shinyoung Asset Management Co. raised 9.1 billion won until March 23. It drew a total investment of 32.9 billion won in the last two months.

The fund recorded a 7.02 percent profit in the past 10 weeks, which is higher than the three-month average interest rate of 2.87 percent for 2,604 fund products analyzed by KG Zeroin.

"The fund is aimed at unification, and it bets on value shares," said Huh Nam-kwon, chief investment officer at Shinyoung Asset Management. "Under the long-term investment policy, the fund formed a portfolio with low-valuation stocks. As a result, it yielded a high return."

   Its portfolio focuses on infrastructure, food and garment companies operating in the inter-Korean industrial complex in North Korean border city of Kaesong and other value shares that can benefit from expanded domestic market.

Riding the trend, Hi Asset Management Co. launched "Hi Korea Unification Renaissance Stock Fund" on May 15, which has drawn 1.1 billion won in the last seven trading days.

Launched when the benchmark KOSPI index surpassed the 2,000 mark, a point where institutional investors turn net sellers for profit-gain, the fund's earnings rate went down to minus 0.4 percent, a little better than minus 0.95 percent for smaller stock funds in the same period.

"We plan to retain the earnings rate by investing in value shares that have long been sidelined despite their hidden values, selecting items according to stages of unification preparations," Kim Young-jin, a senior asset manager at Hi Asset Management, said. "We aim to make profit under the mid- and long-term policy."

   While some industry watchers are cautious over the theme funds that depend heavily on government policy that can easily be swayed by political situations and external risks, other say the new products are part of financial institutions' efforts to find future growth momentum.

"At a time when South Korea's export market remains sluggish without clear momentum, I think the investor interest in unification funds is a positive phenomenon," said Park Sung-hyun, a chief strategist of Hanwha Investment and Securities Co. "As North Korea, which pursues both nuclear weapons and economic development, has faced its limit, it needs to find a breakthrough. So has South Korea as it is seeking sources for economic growth. So there is room for the two Koreas seek cooperation in the future."

   Although the possibility of an imminent Korean unification is still slim, foreign investors are paying attention to the growth potential from combining the North's workforce and its natural resources with South Korea's capital and advanced technology, analysts said.

"The unification of South and North Korea will be possible within five years," Jim Rogers, chairman of Rogers Holdings and Beeland Interests, wrote in his blog in February. "The combination of South Korea's capital and technical skills, and North Korea's labor and natural resources, is likely to make Korea grow exponentially."

   Strained inter-Korean ties are holding back unification talks, but watchers say Seoul may push for dialogue with Pyongyang to advance inter-Koran projects later this year.

"President Park's wording 'Unification is bonanza' is a great expression for investors as it highlights benefits first rather than reminding of risks related to the investment," Park at Hanwha said. "The unification fund is expected to gather more steam in the third and fourth quarters of this year based on the momentum in the short term."

   ejkim@yna.co.kr

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