[Market's Eye] "AI Premium Continues... AI ETF Promising"

Interview with Nam Yong-su, Executive Director of ETF Management Division at Korea Investment Trust Management
Value of Listed Companies Emphasizing Shareholder Returns Will Grow

As artificial intelligence (AI) technology advances, AI-related stocks are gaining attention in major global stock markets. The asset management industry is launching related products that allow investors to invest in companies expected to grow in the AI era through exchange-traded funds (ETFs).

Nam Yong-su, Head of ETF Operations at Korea Investment Management, said in an interview with Asia Economy on the 6th, "Starting this year, AI is expected to penetrate daily life in earnest and actually generate added value and profits," adding, "The semiconductor industry is expected to improve due to the expanding demand for AI." He also said, "'As long as there is no growth engine to replace the 'AI premium,' the strong performance of AI is likely to continue for the time being," and "interest in related ETFs is also increasing."

He recommended that if you are considering investing in semiconductor companies benefiting from AI, related ETF products would be the optimal alternative. Korea Investment Management launched the ACE AI Semiconductor Focus ETF, which allows concentrated investment in AI semiconductor-related stocks. It holds Samsung Electronics and SK Hynix, which have a high market share in the non-memory semiconductor market known as AI semiconductors, at a weighting of over 20%.

Nam also expects changes in shareholder returns and governance as the government promotes corporate value-up programs. He said, "It is noteworthy because it has been effective in Japan," and added, "We expect a revaluation of companies that consistently increase dividend yields among listed companies with a price-to-book ratio (PBR) below 1." He recommended the ACE Shareholder Return Value Active ETF, which includes small and mid-cap quality stocks.

He predicted that the ETF market will continue to grow rapidly this year following last year. The ETF market surpassed 100 trillion won in total net assets for the first time in June last year and grew to 121 trillion won by the end of the year. Nam said, "The ETF market is expected to grow centered on individual investors," and "ETFs are rapidly growing in pension accounts." He added, "Considering that ETFs account for 10% of pension accounts, there is still significant room for growth."

He said, "Recently, individual investors mainly make regular investments by steadily purchasing index-tracking products such as the S&P 500 or Nasdaq 100," and predicted, "As the retired population increases explosively, demand for withdrawal products that pay a fixed amount monthly to elderly retirees will increase."

Considering post-retirement, he recommended maturity bond-type ETFs as promising. He said, "Regular investments are suitable for stock-centered price-tracking products," but "there will be high demand for bond-centered products with predictable returns for withdrawal periods."

Nam predicted that as investor needs diversify, there will be more thematic products reflecting investment styles and needs. However, as the number of types increases, choosing the right ETF becomes more difficult. He explained, "You should invest according to your investment style and the purpose of accumulating funds," and "If you invest long-term, it is better not to sell core assets and to diversify thematic assets." He introduced the ACE US Big Tech TOP7 Plus ETF, which invests in companies that have secured leading positions in their fields by investing in research and development (R&D) costs that competitors cannot match. Nam expects good long-term performance due to its high growth potential.

As interest in ETF products grows, Nam also suggested the need for institutional improvements. He pointed out, "There is a tax difference between investing in overseas-listed ETFs and domestic-listed ETFs." Overseas ETFs are treated as stocks and subject to capital gains tax, while domestic ETFs are treated like funds and subject to dividend income tax. Gains from trading domestic ETFs are taxed at 15.4% dividend income tax, whereas overseas ETFs are taxed at 22% capital gains tax. Although domestic ETF investment may seem advantageous based on tax rates alone, capital gains tax is not combined with comprehensive income tax, so even large gains are not subject to comprehensive financial income taxation. Dividend income tax applies to those whose financial income exceeds 20 million won during the tax period and is subject to progressive taxation combined with other income. Therefore, individuals with large investment scales may face increased taxes when investing in domestic ETFs.

Nam said, "If the system is improved so that tax burdens are not heavy when investing in overseas ETFs listed domestically, it will help the ETF market grow."

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