It is basically wealth management that is set on an international background, expanding growth and maximizing the possibilities of returns at the varying appetite for risks.

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The Basics of Global Asset Management

A specific branch of the financial services industry, global portfolio management pools is simply the art of taking charge of investment accounts so that investors can increase their assets and achieve their investment objective over time.

Here are some basic facts about this specific field of wealth management:

Global portfolio management is perfect for those who have a lower appetite for risk

Each investor has their own objective and appetite for risk. Global portfolio management offers the perfect middle ground for those who want to expand their portfolio without too much risk.

Let us illustrate the benefit of global portfolio management by giving an example. Say you have stocks in the US market and stocks in an international portfolio. If the economy in the US declines, your net investment might be compromised. However, there’s a possibility that your international portfolio might work out better, thus pulling up your net investment.

This is what global portfolio management does–it spreads out your investment stocks so that there are lesser risks for you.

You’ll get more exposure to other currencies

One’s currency may hold more value than others, and you and your portfolio manager can explore this best with an international portfolio. This specific type of wealth management purchases stocks in different currencies.

Now we’re guessing that you might be a little confused as to how this will benefit you. Allow us to provide you with another example to illustrate multi-currency buying through an international portfolio.

You’ll be able to make the most out of market cycles

Trends and patterns emerge over time in different nations. Say your portfolio manager might suggest that the currency in the US and the stocks are undervalued. This means that they will then look for other avenues to invest your money in, likely in other developing countries where you can get the most out of your assets.

There are bigger transaction costs involved in a global portfolio management

Buying and selling international stocks is not going to come at a price. Alongside a wider security net, you still need to take into account the various international stocks that will still be deducted from your net earnings.

With so many stamp duties, taxes, and exchange fees that you and your investment portfolio manager have to consider, it’s wise to take this into account when you decide to dip your toes into the international stock market.

Methods of Global Portfolio Management

Now let’s move on to the different modes that make up global portfolio management. We’ve differentiated these two management methods for you below–keep on reading.

Portfolio Equity

Portfolio equity includes group investments of assets that are transacted in equity. This does not take into account other direct investments and stocks performed in international markets.

Portfolio Bonds

On the other hand, portfolio bonds include group investments that are transacted in bonds. These are often long-term and are perfect for those who have a higher appetite for risks.

Global Mutual Funds

This refers to the management of mutual funds at an international level. This is not particular to any foreign country, rather your grouped assets will be diversified among different countries. This transacts predominantly with securities that are issued in an international field.

Closed-end Country Funds

If you prefer a more conservative way of investing in another economy, then a closed-end country fund might suit your appetite. It is not as diversified as your other options and it invests in international securities, giving you space to indirectly invest money.

Disadvantages of Global Portfolio Management

While generally considered safe and conservative, there are certain drawbacks attached to global portfolio management that you need to be aware of.

Currency might not work in your favor

The exchange rate is something that is beyond your control and that of your portfolio manager. For something so volatile, this largely dictates the value of your foreign portfolio. However, the good thing is that these fluctuate rather often, and might just work in your favor.

The government can get involved

The government in some countries has a say in the security prices. They could possibly take a chunk of the share of securities that are in stock exchanges.

The political risk is higher

The political and economic stability of various nations needs to be taken into consideration as well. Although a political coup is unlikely, it is still possible and this will affect the stock market for sure.

We are, Global Asset Management South Korea

According to World Bank data, South Korea ranked 24th for overall GDP last year. GDP, of course, is a measure of a country’s economic strength. Their GDP grew from $901.9 billion in 2009 to $1.72 trillion in 2018, an increase of almost 91%. It’s projected to reach $1.99 trillion by 2024. In terms of where the economy stands per person, GDP/capital has grown from $19,138 in 2009 to $33,320 in 2018. The country ranks 30th globally in per capita income.

Why South Korea?

Inflation has remained low following rate cuts by the Bank of Korea in Seoul. Ongoing low rates will have a simulative effect, which is bullish for South Korean stocks. Low interest rates will lead to a weakening of the South Korean won against the U.S. dollar, Euro and other major currencies. This makes their exports more competitive in the global marketplace, further boosting their economy.

Global Asset Management analysts are optimistic about a trade resolution between China and the United States. Investors share our opinion, and this optimism is providing strength to Asian markets, including the KOSPI. The index is trading higher from gains in technology, industrial and financial sectors.

Investor Trade-Offs

The Korean economy has been attractive for international investors for some time. It boasts a combination of rapid growth rates and stability. As with everything, there are trade-offs. Individual investors should always weigh risks against rewards.

Benefits:

• Stable, developed economy: member of G20 and OECD (Organization for Economic Cooperation and Development). Considered an advanced nation.
• Per capita income surpassed $30,000 for the first time last year to reach $31,349 (2018), according to The Korea Times.

Risks:

• Geopolitical: next door to North Korea. While relations between the two countries are improving, North Korea is highly militarized and considered unstable.
• Export Reliant: South Korea is taking the correct steps toward responsible growth but they are heavily reliant on exports, making them vulnerable to global economic contractions.

South Korean ETFs

ETFs are exchange traded funds. They are closed-end mutual funds that trade on the stock exchange. They’re an excellent vehicle for global investments since they offer diversification and professional money-management. ETFs are also more liquid and have lower management fees than closed-end specialty mutual funds. South Korean ETFs include shares of South Korean companies, securities listed in the KOSPI (the Korea Composite Stock Price Index) and possibly South Korean debt instruments (government and/or corporate fixed income products).

The most popular South Korean ETF is the iShares MSCI South Korea Index Fund (NYSE: EWY). The $4.3 billion fund trades on the New York Stock Exchange. Its average daily trading volume is 3,026,785, making it the largest and most liquid of the Korean ETFs. It has a 0.59% management fee. The fund tracks the MSCI Korea 25/20 Index, which is a weighted average of large- and mid-cap stocks trading on the Korea Exchange. It is top-heavy with ten holdings making up half the assets under management. Samsung Electronics accounts for 20%. Other dominant positions include shares in POSCO, Hyundai and LG Chemical.

Other South Korean ETFs:

• Franklin FTSE South Korea ETF (NYSE: FLKR)
• First Trust South Korea AlphaDEX Fund (NASDAQ: FKO)
• HSBC MSCI Korea UCITS ETF (LSE: HKOR)

South Korea ADRs

ADRs are American Depository Receipts. They represent ownership in shares of foreign companies. ADRs are not as liquid as other stocks trading on the major exchanges. Examples include:

• LG Display Co., Ltd. (NYSE: LPL)
• SK Telecom Co., Ltd. (NYSE: SKM)
• KB Financial Group Inc. (NYSE: KB)

Final Words

• Investor interest in South Korea is increasing due to steady economic growth, and membership in both the G20 and the OECD
• The best way for investors to participate in South Korea is through ADRs and ETFs, both of which trade on U.S., London and European stock exchanges
• Overall, South Korea has many investment-related benefits. However, potential investors must consider the geopolitical and other risks in relation to their overall investment goals and temperament.

Global Asset Management is a private investment firm located in Seoul, South Korea. Individual investment recommendations should be discussed with a GAM investment advisor, to ensure suitability.

Check out more on our Global Asset Management South Korea blog.

There are many reasons why Seoul, South Korea is a great location to do business.

Global Asset Management finds many advantages being based there.

In addition to having the world’s fastest internet speeds, they have one of the highest-educated workforces anywhere.

Student math and science scores are second only to Singapore, and they have a high literacy – over 95%.

Most people speak English.

Most importantly, the cultural attributes that have made the country an economic success also support GAM’s success.

Read more: What is Global Asset Management?

FAST FACTS

• Official Name: Republic of Korea (ROK)
• ROK: Han’guk – shortform of Taehan-min’guk
• Language: Korean (Hangul) is official language. Most people speak English.
• Government: Presidential Republic
• Population: 2019 estimate 51,709,098 (27^th largest in the world by population)
• Geographic Size: 100,210 km²
• Capital City: Seoul, 10 million inhabitants
• Second Largest City: Busan, major port
• Economy: 11^th largest economy by GDP.
• Life Expectancy: 3rd highest in the world, credited to high quality healthcare
• Local Landmark: Lotte World Tower in Seoul is 5^th highest building in the world
• Ethnicity: 96% ethnic Koreans (one of the most ethnically homogeneous societies)

ECONOMY

South Korea is one of the 20th Century’s great economic success stories, growing from one of the poorest countries in the world into a member of the G20 with a GDP in excess of one trillion dollars.

Modern history begins following the 1950-1953 war with North Korea.

People were encouraged to save and invest, rather than consume, and the government directed resources towards export-oriented industries.

Confucian values, that still dominate the culture, made this possible.

There is an ethic of hard work and living a simple life.

This combination led to South Korea having the fastest growing middle class in the world for several decades.

Read more: Wealth Manager Explained

SOUTH KOREAN TIGER

Today, they are considered one of the four Asian Tiger Countries, along with Singapore, Hong Kong and Taiwan.

The Asian Tigers are high-growth economies fueled by rapid industrialization and exports.

As a group, they have enjoyed steady economic growth since the mid-1960s and now rank among the wealthiest countries.

South Korea and Taiwan evolved as essential manufacturing hubs for electronic parts, information technology and automobiles.

Singapore and Hong Kong grew into worldwide financial centers.

IMPORTS/EXPORTS

Today, South Korea boats the 11th largest global economy by nominal GDP.

South Korea’s main trading partners are China, the United States, Japan and Germany.

Major conglomerates include Samsung, LG Electronics, Hyundai and the Lotte Group.

Main exports are to China (25.1%), the United States (12.2%), Vietnam (8.2%), Hong Kong (6.9%) and Japan (4.7%).

hese include semiconductors, petrochemicals, wireless communication equipment, cars and auto parts, flat displays, ships and steel.

Imports come from China (20.5%), Japan (11.5%), the United States (10.5%), Germany (4.2%) and Saudi Arabia (4.1%).

The largest commodity imports are crude oil & petroleum products, natural gas, coal and steel.

Manufactured goods include semiconductors, computers, wireless communication equipment, automobiles, textiles and chemicals.

CONFUCIAN INFLUENCE

Modern Confucianism in South Korea is more a template for society than a religion.

Korean Confucianism is a major influence and a fundamental part of society.

The values imbued contribute to a great workforce, a growing economy and a stable social order.

Respect for education is a vital part of South Korean culture; the emphasis is placed on an ability to study and to memorize.

The focus on family and the group over the individual, along with respect for elders, translates into a people that thrive in a corporate structure.

CONFUCIOUS AT WORK

Confucianism supports group harmony, hierarchies and traditions.

Maintaining ‘kibun’ (face, honor and personal dignity) is important.

Businesses built on Confucian ethics instill harmonious relationships among workers and company loyalty.

Punctuality is highly valued and an essential sign of respect.

Efficient and time-oriented workers make decisions and complete tasks quickly.

Western societies focus on diversity and inclusion.

Korean culture focuses on a sense of belonging.

This involves developing deeper personal connections and harmonious relationships.

The corporate culture focuses on what employees have in common, rather on what their differences are.

NUNCHI

“Nunchi” literally translates to “eye-measure”.

It is close to the western notion of emotional intelligence.

Nunchi is the art of sensing what people are thinking and feeling in order to respond appropriately.

It’s been described as “speed-reading a room with the emphasis on the collective, not on specific individuals”.

This Korean concept was introduced 2,500 years ago as a teaching of Confucius and is credited with the modern economic miracle.

On a global scale, Nunchi explains the country’s ability to determine the needs of other countries, to manufacture exports to meet those needs and to continually adjust as those needs change.

This awareness also helps people function well in the workplace.

It gives Global Asset Management local staff a special ability to work with both a diverse expatriate staff and a global clientele.

It brings harmony to the GAM Seoul office.

Global Asset Management FAQ​

It’s so simple, it sounds too good to be true. But it’s not. Many clients of Global Asset Management Company in Korea use this simple and effective strategy.

In simplest terms, laddered bonds are staggered with different maturities. Let’s say, for example, that you have $50,000 to invest in bonds. The total sum is divided into equal amounts – whether it’s five $10,000 bonds or ten $5,000 bonds. For our example we’ll use five different maturities.

Each bond would represent a rung on the ladder. The first one might mature in 2 years, the next one 4 years, 6 years, 8 years and 10 years. In two years, when the first bond matures, it would be re-invested for 10 years. Once again, you would have a portfolio of bonds maturing in 2, 4, 6, 8 and 10 years.

Read our article on Profiting from Market Downturns.

WHY BUILD A BOND LADDER?

There are several benefits to this strategy. The first one is that you are always reinvesting your cash at the longer end of your maturity range. Except for rare occasions, the longer the bond, the higher the interest rate. So, you are always investing at the maximum rate. A second benefit is that there is a regular amount of liquidity available in a portfolio.

There is always an investment maturing. A third benefit is simplifying decision making and reducing exposure to interest rate risk. Rather than trying to make a decision about where interest rates are heading and guessing the best maturity, you always reinvest at the furthest end of the bond ladder.

The rationale behind this approach

GAM (Global Asset Management) further explains the rationale behind this approach. Laddered bonds protect investors from interest rate risk. For instance, using our example, if $50,000 was invested in one 5-year bond and interest rates went up, then the investor loses the chance to invest funds at the higher rate.

Selling a bond when interest rates rise results in a capital loss. It’s best to have funds available to invest at the higher rates when they increase. The flip side is that in a declining market, laddered portfolios are always investing in longer maturities where there is the best possible rate.

In addition, because it’s just a portion of one’s bond holdings being reinvested at a given time, one doesn’t get stuck reinvesting a large portion of capital at lower rates. Bond ladders mitigate interest rate fluctuations since there is always an upcoming maturity.

The bond market is much larger

A secondary benefit to bond ladders is the ability they provide to control cash flow. The bond market is much larger than the stock market, and in selecting an assortment of bonds with staggered maturity dates, one can select bonds with coupons paid at different times of the year.

Many government bonds have semiannual coupon payments, which means they pay interest twice a year. This aspect of the strategy is more relevant for retired individuals who depend on their investments for regular cash flow. Still, it can be helpful to have access to cash, and to relatively liquid funds with bonds steadily maturing.

One might want access to cash for a real estate down payment, or have unexpected expenses or suffer a job loss. This is a way to maximize one’s safety net on top of maximizing income.

HOW TO BUILD A BOND LADDER

To build a bond ladder, first envision an actual ladder. Next, apply the asset allocation model from your investment plan to determine the total amount you wish to invest in fixed income ($50,000 from our earlier example). The only other decisions you need to make are the number of rungs on the ladder (5 from our example) and the distance between the rungs (ex. 2 years).

Investors may wish to have funds maturing every year, or even every few months. These decisions are best made with guidance from your Global Asset Management company advisor in Seoul. One the decisions are made the math is simple.

A final consideration is the quality of the building materials. And just like a real ladder, the stronger the materials, the safer the ladder. There are many types of fixed income products, with different levels of risks and rewards. Corporate bonds, government and municipal bonds, treasury bills and bank GICs can all be incorporated.

While it can be tempting to sneak a few higher risk bonds into the ladder to grab a little extra return, remember that your capital is at risk. Stick to bonds with a minimum A-grade. Last, avoid investment products that the issuer can redeems. You’ll end up having to reinvest unnecessarily which incurs costs.

The greatest secret

The greatest secret of all to building wealth is to start. This simple strategy can be applied with equal success to a wealthy retiree and a young student starting out. Equally effective ladders can be built with $1 million bonds and $100 GICs. The concept is the same. For more information contact Global Asset Management Korea and speak with a GAM Investment Advisor.

1. Learn the basics about market cycles to avoid reacting emotionally as they change
2. Prioritize your goals within your own life cycle and decide how much risk you can honestly afford to take financially
3. Establish a long-term investment plan that lays out your goals, your situation and risk tolerance. Stick to it no matter what is happening in the market

Read more about what is global asset management?

MANAGING EMOTIONS THROUGHOUT MARKET CYCLES

Economic cycles can range from two years to over a decade. Stock market cycles lead economic cycles by 6-12 months. Investors who succeed through-out repeated cycles learn to recognize the difference between what they instinctively want to do, and what they should do.

GAM (Global Asset Management) advisors report this is one of the most difficult aspects of their work. When stock prices are high, greed tempts people to buy. When markets are in a downturn and prices are low, fear leads people to want to sell. This flies in the face of common sense. Even a child is familiar with the mantra: buy low and sell high.

The best way to control one’s impulses and make objective decisions is by having a written investment plan and sticking to it. The first step in objectivity is learning about market cycles and appropriate reactions.

MARKET TOP

Markets peak after a period of strong economic growth and low interest rates. At the top, the economy is still growing but the rate of growth is slowing. Usually interest rates are falling to stimulate growth, and unemployment remains low. During this interval, corporate earnings show signs of pressure and the risk of recession rises.

The problem is that stock market gains are a buzz and in this state of elation, people want to buy even as market risk increases. This is a great time to re-balance a portfolio. Asset classes that have risen above their intended allocations should be trimmed back like hedges to their ideal shape. In doing so, the investor locks in profits and raises cash.

THE DOWNTURN

Once the market peaks, it starts to come down. Indicators that the economy is in or nearing recession include rising unemployment, falling corporate profits and downward stock market trends. The Fed will have begun rate cuts. This is the start of the bear market. At first, people will be optimistic that a correction is at hand and the bull market will continue.

Eventually reality sets in along with negative emotions leading to a temptation to sell. This stage of the market cycle requires patience. Investors should review their investment plan and ensure that all holdings contribute to achieving long- and mid-term goals. Do not panic and go to cash.

MARKET BOTTOM

Think of this period as the dark before dawn. Just like the market top, it won’t last forever. Economists define a recession as two consecutive quarters of negative economic growth, based on a country’s GDP (gross domestic product). During this time, expect falling inflation, rising unemployment, and declining corporate profits. Stock prices trend down.

Eventually, there will be a catalyst to turn things around, which is often the Federal Reserve cutting interest rates to inject liquidity into the economy, stimulating spending and leading to growth once again. This can be a depressing time for emotional investors.

But it’s the best time in the market for wise investors who trimmed their hedges at the top of the market. They have cash on hand to buy stocks at a deep discount, providing the best opportunity for long-term growth and wealth creation. This is the time to buy, not cry.

THE REBOUND

The market equivalent of a crocus peeking through the snow, this is the start of a new bull market. Economic indicators include employment upticks, low interest rates and sudden upturns in corporate profits.

To underscore the importance to investors of being fully invested at this point in the cycle, note: the year after a market bottom the S&P increases by an average of 47%. Investors who panicked and went to cash trying to time the bottom (not you, dear reader) should immediately return to their investment plans and buy diversified, good quality stocks.

Again, check your portfolio against the established investment plan and rebalance any asset allocations that are out of whack. Then sit back and relax, knowing the worst is over.

THE ROARING BULL

At this final stage in the overall cycle, the bull market is well established. Economically, statistics show strong growth, falling unemployment and increasing corporate profits. Stock prices are rising. As this cycle progresses and investors grow more confident, greed sets in and they feel invincible.

This is the time to be alert for the temptation to over-weight a portfolio with stocks, especially growth stocks and aggressive small caps. Towards the end of this cycle, market volatility intensifies and quarterly company reporting becomes less predictable, leading to both spikes and drops in stock prices.

Approaching the next market top, once again review one’s holdings against the investment plan and trim the hedges so you’ll be ready for the next fire sale.

Bottom line, understanding where we are in the market cycle and how to react appropriately is a powerful step to building long term wealth. It’s easier said than done. Advisors with Global Asset Management Company Korea report this as one of the most important aspects of their job. Being objective during difficult markets adds value to all advisor-client relationships.

Have an investment plan and stick to it. This is the key discipline in building long term wealth.

Looking for a wealth and asset management company in Korea? Give us a call.