South Korea considers moving reserves into foreign stocks


By Song Jung-a and Florian Gimbel
Financial Times, London
via Yahoo News
Friday, February 9, 2007

South Korea's central bank said yesterday it was considering investing part of the nation's huge international reserves in overseas stocks, and especially the blue chips of advanced countries, in an effort to gain higher returns.

The announcement comes as the Bank of Korea faces increasing calls for better management of $240 billion (E185 billion, £122 billion) in foreign exchange reserves, the world's fifth largest, after nine years of growth.

The BoK said it had invited foreign asset managers to pitch for potential mandates to manage its overseas stock investments and was considering entrusting them with investments.

"There is no change in the central bank's basic principle that it will invest in liquid assets yet improve returns on foreign-exchange reserves," Lee Seong-tae, the BoK's governor, said after the bank held its benchmark interest rate steady at 4.5 percent for the sixth consecutive month.

"We are considering managing international reserves through overseas investment banks. That may include buying blue chips in advanced countries," he said.

Mr. Lee said the size and timing of any foreign stock investment had not been decided and that, when it happened, the initial amount invested would not be very big given the need to maintain stability in the management of the reserves.

One Hong Kong-based investment consultant said: "Managing money for the South Korean central bank is on the radar screen of all the big institutional fund managers. It's a trophy mandate that none of them would want to miss out on."

The BoK's move follows a policy switch in China, which also wants to diversify its more than $1,000 billion of foreign reserves, 70 percent of which are believed to be held in dollar-denominated assets.

To generate higher returns, the People's Bank of China, the central bank, is in the process of hiring international fund managers specialising in equities, although any investment mandates are likely to remain secret for fear of revealing the bank's investment strategy and reserve composition.

Lim Ji-won, at JPMorgan, said: "It is a global trend that central banks are trying to diversify their assets towards higher-yielding investments. But I think the BoK's investment in overseas stocks will happen only gradually, given its lack of experience and its original purpose of securing enough liquidity."

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