Investing in Korea needs nerves of steel

With no prior experience in investing, William McRoberts went into a securities company office about seven years ago and started a profitable hobby.

The securities company he invested with had a branch located on the same floor as the hagwon where he was teaching, so one day the Canada native went in and bought 200,000 won worth of stock in a Korean conglomerate.

That didn`t buy a huge amount of shares, but by the time he chose to sell them, he got 540,000 won back. This has since become a trend for McRoberts, who is now a high school teacher in Gyeonggi Province who estimates that he`s doubled his money since he started investing here.

McRoberts typically invests in common stock, as opposed to preferred stock, which carries priority in the payment of dividends, but doesn`t see nearly as much change in value.

Examples of common stock include the chaebol, or family-owned Korean conglomerates such as Hyundai, LG and Samsung. McRoberts does most of his investing in companies listed on the KOSPI, as opposed to the tech-heavy Kosdaq.

"I set aside a certain amount of money each month and I invest it," he said. "It`s a good way to self-discipline myself to save some money."



McRoberts cited many good reasons to invest in Korean stocks when compared to those in North America. For one thing, it`s easier to find good bargains here, as Korean stocks have a much lower price-to-earnings ratio than in the United States. P/E ratios measure the price of a share against annual profit or net income per share, and McRoberts said that Korean stocks are much cheaper in those terms than shares in the U.S. maket.

Another factor is the so-called Korea Discount, the amount investors undervalue Korean stocks. There are a lot of factors at play, most notably geo-political tension. But economic nationalism also makes investors wary of business on the peninsula. Things like rampant corporate nepotism and dysfunctional politics are also at play (brawls in the National Assembly and "mad" mad-cow protestors on the streets).

Last year, when the Lehman Brothers bankruptcy filing prompted an international financial crisis, the depreciation in Korean stocks and won was primarily due to foreign investors -- who have huge, sometime even majority shares in large Korean companies -- who withdrew due to jitters and a desire to own something they thought was secure.

"That`s why the American dollar was getting so strong and all these other currencies were getting so weak," he said. Right around the time Lehman collapsed, McRoberts bought gold at $770 an ounce, which he later sold at $924.

McRoberts does his trading online, which he prefers because the fees are very small. To do this, all an investor needs to do is visit a securities company or bank with the money they want to invest, download a free trading program onto their computer, and then begin.

"In effect you are the guy on the trading floor in New York," he said.

While this requires some basic ability to read Korean, McRoberts stresses that his own knowledge of the language is very basic.

Another option is for the investor to go to the broker with the cash and tell them what he or she wants to buy, though this carries a higher fee. For those who want more guidance, the third option involves asking the broker for investment advice, after which they present a list of companies whose shares they recommend, a service which requires a still-higher fee.

McRoberts, though, prefers to make the investments himself online. Though he has a degree in economics, he said the most important attributes an investor can have are common sense and "nerves of steel." In one respect, he believes not knowing much Korean has helped him.

"I don`t speak Korean, I don`t understand Korean, so I`m not always in on the rumors," he said. "I`m not emotionally affected by that ... I`m not panicking."



Mutual funds also an option



Expats who want an investment option other than stocks can try overseas funds.

Daniel Costello, originally from Canada, first came to Korea in 1996 and started investing in mutual funds more than 10 years ago.

"Investing started because I had extra money and it became part of my monthly routine," he said. While it began to help him pay his debts, "When you get into the habit of paying off your debts you have this money left over."

Costello enjoys investing in mutual funds from Korea because "your income is totally your own and you don`t have to declare anything until you become a resident (of your home country) again," he said.

In addition, he calls Korea "one of the better countries" with regards to taxes: While his home country taxes 35 percent on income, Korea`s taxes are at 5-10 percent.

Costello, currently working as a university lecturer in Pocheon, Gyeonggi Province, prefers mutual funds to stocks because funds do not require the daily attention that stocks do, he said.

In particular, he likes investing in the BRIC (Brazil, Russia, India and China) economies, because some of the best global investment funds are found in these rapidly-growing nations. However, even they haven`t been immune to the calamities of the financial crisis.

"The last year has been terrible," he said, as he lost up to 30 percent on his investments. Now, however, most of his investments are nearly back to pre-crisis levels, and Costello still sees reason to believe that further investments will pay off.

"I wish I had started investing when I was in my early 20s," said Costello, who was in his mid-20s when he began. "I`m really concerned about my own retirement, so that`s what I`m preparing for," he said.

"You`re training yourself to put aside part of your monthly income. The closer you are to retirement the more important it is to have a nest egg."

To get started investing in a fund, expats can go to their bank and review the funds which are listed as available.

But be warned: bank employees have spotty English abilities. If you`re dealing with a substantial amount of money, banks in Korea usually can`t offer adequate bilingual service. The biggest bank in Korea, for example, when contacted for this article declined to answer any questions because they said they were not confident in their English abilities.

Costello says most of the literature is in Korean, but that shouldn`t stop you.

"The books and brochures will be in Korean, but the fund`s data can also be available online," he said.

Costello recommends that expats in Korea who are first-time investors be aware of the repatriation plan in the nation they came from.

"When they return they should be aware of the tax regulations governing their offshore earnings," he said. "For example, they would need to declare all offshore accounts on repatriation to Canada and pay all capital gains taxes on global earnings. For each country different regulations exist. Investors should find out what they are first."

There are also brokers in Korea which work exclusively with expats. One example is the multinational Regency Asset Management Ltd., which uses the Isle of Man and the Channel Islands for these purposes.

"Basically, most foreigners are allowed to invest their savings tax free," said a Regency Asset consultant in Seoul who asked not to be identified. He said that he deals entirely with expats, because Koreans are not allowed to invest tax free.

Companies that investment consultants deal with on the Isle of Man and the Channel Islands receive many benefits; for example funds grow "virtually free of tax," savings are confidential "unless you are a drug dealer or terrorist," and the companies Regency Asset deals with have a very high level of investor protection, he said.

For example, in the United States the investor`s first $250,000 is protected in the event of a bank collapse. However, "in the Isle of Man and Channel Islands, the investor`s money is protected to 90 percent," he said, "including growth, so if you invested $1 million, it grew to $2 million and the company collapsed, you`d still get back $1.8 million."

Regency Asset recommends funds instead of stocks, because they are much safer, the broker said. To get started, investors must provide a copy of their passport, plus proof of address and proof of employment. If an investor starts with as little as $300 a month at age 25, they can finish with an adequate amount for their retirement.

"Our favorite areas for investment are the emerging markets of the world, such as China and India, we see these areas growing significantly more than the developed world over the long term," he said.

"It is most important that people living overseas prepare for their retirement, best to save every month over the years toward your future."

(rjamesyork@heraldm.com)





By Rob York