Central bank may invest reserves in foreign stocks
The Bank of Korea is considering investing some of its foreign currency reserves in overseas stocks as part of efforts to improve returns, the head of the central bank said yesterday.
"There is no change in our basic principle that foreign exchange reserves should be held in the form of liquid assets that can be managed in a way that yields better returns," BOK Governor Lee Seong-tae said.
"It (the investment) may include blue chip stocks in advanced countries," he told a press conference after he presided over the monthly monetary policy meeting which held the benchmark interest rate unchanged at 4.5 percent.
Lee said nothing has been decided concerning the timing and investment scale.
His remarks came after local reports that the central bank may put $1 billion of the foreign currency reserves into overseas stock markets.
The BOK has already sent a request for investment proposals to 30 offshore asset managers including Citigroup Inc., Merrill Lynch & Co. and Schroders Plc.
Korea's foreign currency reserves stood at $240.2 billion last month, the world's fifth-largest after China, Japan, Russia and Taiwan.
Stung by the Asian financial crisis in 1997-98, Asian central banks stacked up on foreign currency assets, mostly dollar-denominated assets. Korea, following the axiom 'better safe than sorry,' has invested its reserves in more secure assets such as U.S. treasury bonds, but not in stocks.
In 2005, the BOK signed an agreement with the state-run investment body Korea Investment Corp. to manage $17 billion of its foreign currency reserves. KIC has invested of around $1 billion so far.
The BOK's move is a blow to the state investment body which has requested to manage a greater portion of the reserves. Observers said if the central bank goes ahead and entrusts part of the reserves to foreign asset managers, there will be huge pressure on KIC to deliver the same level of returns as do global institutions.
"KIC is one of the investment companies that we can entrust (the money) to," the BOK governor said.
Holding substantial foreign reserves has created a positive impact on Asian nations' sovereign credit ratings and helped them develop the ability to cope with external shocks.
However, the continued weakening of the U.S. dollar has driven down their returns, raising the issue of the need for a more effective management of foreign reserves.
Some analysts warn of the risks involved in stock investment using foreign reserves.
"The prime reason behind holding foreign currencies as reserves is not to earn money on it. It is to guarantee a level of liquidity," said Yoo Byung-kyu, a director at Hyundai Research Institute.
(milaya@heraldm.com)
By Lee Sun-young
2007.02.09
koreaherald.co.kr |
