The Korean Public Officials Benefit Association (POBA) is shifting its focus towards various developed markets due to increasing divergence in interest rate policies.
In addition, within Asia Pacific, the pension fund has ventured into Vietnam and India through dedicated equity mandates.
“While we focus solely on real estate markets, the situation in European real estate is much better than in the US in terms of supply-demand structure and interest rate monetary policy stage, as the ECB [European Central Bank] has already begun its rate cutting cycle in June, Huh Jang, chief investment officer at POBA, told AsianInvestor.
Huh Jang
POBA
The US accounts for 60-70% of POBA’s overseas investments, while Europe and Australia make up less than 30% combined.
Despite various geopolitical and macroeconomic uncertainties in both the US and Europe, Huh is confident that these developed markets will achieve a soft landing as the cycle shifts towards rate cutting.
“The pace of the rate cutting in the US and the EU is not so important. The key point is that rates will be cut to achieve normalisation without a deep recession or crisis in this cycle,” he said.
As of the end of 2023, POBA managed assets worth W24.4 trillion ($18.2 billion).
EQUITIES PUSH
As part of its 2024 strategy, POBA also plans to increase its share of equity investments in the portfolio.
As of the end of 2023, the lion’s share – 72.3% – of POBA’s portfolio was invested in alternative investments.
The plan is to increase equity exposure from 6.5% at the end of 2023 to up to 10% by the end of this year.
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Part of this growth is sought through newly initiated equity mandates dedicated to India and Vietnam. The externally managed active mandates are targeting these developing markets as POBA anticipates a boom in their roles as manufacturing hubs in the coming years.
“Following the trade conflict between US and China, many manufacturing plants are expected to move from mainland China to the other emerging markets with low labour costs, mainly represented by countries like India and Vietnam, but also Indonesia, Malaysia and other Southeast Asian countries will replace China. We focus on that secular trend,” Huh said.
While the mandates were recently launched, the plan is to keep increasing the allocation over the long term.
“We think that this conflict between US and China about trade and technology hegemony is expected to go on for a longer period, and we need to take advantage of those trends. That’s the main reason why we focus on Vietnamese and India stocks.”
The Vietnam mandate is managed by Fides (Vietnam) Fund Management established by Korean investment professionals in Ho Chi Minh City, while the India mandate is managed by Korea-based Mirae Asset Management’s Indian subsidiary.
APPEALING FACTORS
Despite some overarching trends, POBA also sees Vietnam and India as different investment cases. For Vietnam, the move into the market also had a tactical element.
“In 2022, the Vietnamese equity market index fell significantly. Starting from last year, we have seen good timing for long-term investors to venture into Vietnamese equities at a relatively cheap price,” Huh said.
For India, who has taken over China’s status as the world’s most populous country, it is especially the long-term growth trajectory and inner market growth that are additional attractive factors.
“India is globally one of the most attractive markets. Many foreign investors focus on the potential in Indian equity growth. The fundamentals are the same as in Vietnam, even though the equity market index performance seems to be somewhat overheated recently,” Huh said.
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For now, the focus will be on these two major markets, and only on equities. Further dedicated investments into Asia’s emerging markets are still only in the preliminary stages.
“For the other Asian countries or emerging markets, we don’t have any plans at the moment for investing as we are still doing our research. And for fixed income assets, the emerging markets are still not as reliable as we would like,” Huh said.
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