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Korea's sovereign wealth fund sticks with equities, looks to US

[SEOUL] South Korea's US$157 billion sovereign wealth fund may add to its equity holdings if there's another shock in global markets due to increases in coronavirus infections.

"If there is a second wave, we obviously re-consider asset allocation," Choi Heenam, chairman and CEO of Korea Investment Corp, said in an interview with Bloomberg Television. "If there is another market shock, we might slightly, maybe further rebalance our asset allocation toward equities because you might see further potential in the equity markets."

The fund was overweight on stocks versus bonds as of end-March. In terms of geographic allocation, Mr Choi said the Chinese market still has "huge potential," and the US might be the "next destination." While the American economy may weaken further due to the pandemic fallout, its financial market "looks pretty good," he said.

Most sovereign wealth funds have used this year's market rout to take on more risk as they avoided having to divert funds to support their local economies. Norway's US$1 trillion fund and Saudi Arabia's US$320 billion Public Investment Fund bought stocks such as Carnival Corp and Royal Dutch Shell Plc, which are still reeling from Covid-19 even as overall markets have regained lost ground.

Mr Choi said Korea's wealth fund is looking for new opportunities from changes in people's lives due to the coronavirus, such as in environmental, digital infrastructure, health-care and supply-chain fields.

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The KIC has US$1 billion invested in bonds related to environmental, social and governance issues. Mr Choi said the fund is monitoring so-called "pandemic bonds," which have helped drive recent expansion of the ESG bond market. Issuance of debt to combat the Covid-19 impact is the fastest-growing category of thematic bonds, reaching US$154 billion as of May 26, according to Bloomberg Intelligence.

Alternative investments such as property have gradually grown to account for about 16 per cent of the Korean wealth fund's total assets. The KIC earned an annualized 8.05 per cent from real estate and infrastructure as of end-2019, according to the firm. The pandemic has posed new hurdles in terms of evaluating such assets, however.

"On-site due diligence is very important in terms of real estate investment, we need to be there," Mr Choi said.

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