Moderate-Yield 'Solsol' Overseas Bonds, Information Remains 'Dark'

3~5% 'Medium-Risk Medium-Return' Investment Popular Among Investors
Unfiled Securities Registration in Korea, Prohibited for Securities Firms to Recommend Under Capital Markets Act
Limited Access to Trading Information and Reduced Speed of Trade Execution

[Asia Economy Reporter Eunmo Koo] Mr. A, a professional in his 50s residing in Songpa-gu, Seoul, recently ventured into overseas bond investments. In search of a stable yet moderately profitable investment in this low-interest-rate era, he was recommended overseas bonds by an acquaintance. After hearing about others' experiences and deciding to invest, Mr. A said, "I have invested about 1 billion KRW in bonds from HSBC, ?lectricit? de France, and Brazil, and so far, considering the low interest rates, I am satisfied."

Interest among domestic investors in overseas bonds is growing. Recently, with the Bank of Korea lowering the base interest rate to an all-time low of 0.5%, ultra-low interest rates have become the norm, leading investors seeking 'medium risk and medium return' to flock to the overseas bond market. However, despite the increase in investment demand, the issue of limited access to investment information remains a challenge.

According to the Korea Securities Depository's Securities Information Portal (SEIBro) as of the end of May this year, the purchase amount of foreign currency bonds by domestic investors reached $32.792 billion (approximately 40 trillion KRW), an 11.4% increase from $29.425 billion (approximately 36 trillion KRW) during the same period last year. As domestic investors increase their overseas bond investments, the deposit assets of retail customers at securities firms are also growing. Samsung Securities' retail customer overseas bond deposit assets, which were around 9 trillion KRW at the end of 2018, increased to about 10.1 trillion KRW by the end of last year and expanded further to approximately 12.2 trillion KRW as of June this year. Brokerage volumes are also rising. Mirae Asset Daewoo's retail customer overseas bond brokerage amount, which was 949.7 billion KRW in 2017, increased to 1.0024 trillion KRW last year.

It is analyzed that the fixation of low interest rates is drawing investors to the overseas bond market due to their desire for medium risk and medium returns. Recently, the expected returns on safe assets have fallen to levels where asset growth is difficult to expect, with deposit and savings interest rates dropping to the low 0-1% range and dollar time deposit rates remaining around 0.7-0.8%. However, given the persistent economic uncertainties, it is not easy to invest solely in risky assets. In this context, overseas bonds, which handle safe assets while offering possible medium returns of 3-5%, are emerging as an alternative for investors.

Jongcheol Park, Director of Kiwoom Securities Global WM Center, said, "The domestic bond market has a barbell structure centered on bonds that are safe but yield very low returns and bonds with high returns but high risks, lacking intermediate bonds that pursue medium risk and medium returns. In this situation, it is natural for investors to turn their eyes to the overseas bond market, which offers a wider variety of products than domestically."

Although investment demand is increasing daily, information accessible to investors remains insufficient compared to overseas stocks. Investors' thirst for overseas bond information stems from institutional restrictions that prevent securities firms from proactively providing related information. According to the Capital Markets and Financial Investment Business Act (Capital Markets Act), overseas bonds are products for which securities firms are prohibited from soliciting investments. Article 119 of the Capital Markets Act prohibits solicitation of trading for securities that have not submitted a securities registration statement to the Financial Services Commission. Since overseas bonds do not submit securities registration statements domestically, securities firms cannot promote overseas bond investments or recommend specific products.

Therefore, investors must directly inquire at securities firm branches to obtain necessary information. An industry insider explained, "Since securities firms cannot engage in investment solicitation activities, they provide services passively by responding only to customers who request specific information or explanations."

The problem is not only that securities firms find it difficult to actively acquire new investors. The current prohibition on investment solicitation also prevents proactive advice on timing or methods for adjusting asset allocations even for customers who have already invested in overseas bonds. This can lead to direct or indirect harm to investors. Recently, bond investments are often rebalanced by selling bonds mid-term considering exchange rates and purchasing others, rather than holding them until maturity. Selling and repurchasing at appropriate times can increase returns, and expert advice is necessary for this, but it is difficult under the current system.

Jiwoon Hwang, Head of International Finance at Kyobo Securities, said, "The ambiguous gray zone between marketing and information provision acts as a barrier to providing proper investment information to customers. Each securities firm’s compliance department issues interpretations on related activities, and firms with conservative compliance often respond very passively in the field."

The nature of bonds traded in over-the-counter markets also frustrates investors due to difficulty in quickly accessing trading information. In stock markets, where most trading occurs on exchanges, individual investors can easily access real-time price information and make quick trading decisions. In contrast, the bond market, which relies on intermediaries (dealers) for trading, inevitably has lower information accessibility and transaction speed for individuals compared to the stock market.

Experts emphasize the need for securities firms to strengthen bond information platforms that individual investors can easily access. Mr. Hwang said, "Currently, there is a lack of platforms where individuals can easily buy and sell, but some securities firms are developing services that allow customers to view prices and match orders online. Efforts should be made to provide information about issuers and prices as close as possible to actual transaction prices."

Another industry insider suggested, "It is necessary to improve information accessibility by allowing at least closing price information to be checked on mobile trading systems (MTS) and similar platforms." Director Park also said, "Securities firms should increase efforts to provide credible information such as yields by country, rating, and interest rate." He advised, "Investors should compare and review information from multiple securities firms rather than relying on a single firm."

This content was produced with the assistance of AI translation services.