Traditional Wealthy Invest in 'Bonds', Emerging Wealthy Focus on 'Unlisted Stocks' [Super Rich Investment]

Last year, which was not smooth due to prolonged high interest rates and economic recession, high-net-worth individuals focused on bond investments. In response to financial market volatility, they sometimes structured their portfolios by diversifying currencies and combining dollar investments with bond investments. While many bet on growth stocks as secondary battery stocks soared, they adhered to a 'stable investment approach' that focused more on preserving their assets than growing them.

Hyejin Cho, Director of NH Investment & Securities Premier Blue Gangnam Center. (Provided by NH Investment & Securities)

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On the 17th, Hyejin Jo, Director of NH Investment & Securities Premier Blue Gangnam Center, explained in an interview with Asia Economy, "If last year's bond investments by high-net-worth individuals were strategies seeking capital gains, this year there is a lot of interest in monthly coupon bonds that pay interest every month," describing the bond investment trends of high-net-worth individuals. As a professional private banker (PB), Director Jo currently advises high-net-worth individuals at NH Investment & Securities Premier Blue Gangnam Center.

Director Jo said that last year, bond sales overwhelmingly outnumbered stocks or funds. The more assets one holds, the more they focus on risk management, leading to high demand for bond investments that allow precise understanding of cash flow.

Also, in the first half of last year, as the U.S. Federal Reserve raised benchmark interest rates rapidly, bond yields rose quickly, prompting investors seeking to buy at low points to actively purchase bonds. In the second half, as the market interest rate hike trend approached its end, more asset owners turned their attention to the bond market aiming for capital gains.

Director Jo said, "High-net-worth individuals move a step ahead of general investors who consider buying bonds based on the judgment that benchmark interest rates will fall and bond prices will rise in a high interest rate environment," adding, "Since there is no need to rush investments, they mainly held long-term government bonds last year."

Bond returns are divided into interest income and capital gains. Long-term bonds have a long holding period until maturity and tend to have large price fluctuations, but their prices fell significantly during last year's rising interest rate phase. If interest rates turn downward this year and bond prices rise, investors can aim for capital gains through long-term bond investments.

While last year’s investments mainly sought capital gains, this year there is high demand for monthly coupon bonds that pay interest every month. Director Jo said, "There has not been a significant change in the proportion of bond holdings, but demand for high-coupon bonds that provide high returns with fixed monthly interest has increased."

Asset owners also do not neglect currency diversification investments to respond to market volatility. Director Jo explained, "Many invested last year in U.S. Treasury Exchange-Traded Funds (ETFs) listed in Japan," adding, "Because it allows simultaneous investment in the yen and U.S. Treasuries." Holding U.S. Treasuries requires consideration of the dollar’s depreciation, but purchasing Japan-listed U.S. Treasury ETFs can offset this with yen appreciation.

The investment strategies of emerging wealthy individuals who rapidly increased their wealth through coins and stocks after COVID-19 were different. They took a somewhat more aggressive investment approach than traditional asset owners who prefer stable investments. Director Jo said, "Emerging wealthy individuals tend to invest more aggressively because they accumulated wealth through somewhat risky investments," and "They mainly invest in unlisted stocks or mezzanine investments alongside overseas stocks."

Mezzanine investments are securities mainly issued by KOSDAQ companies with low credit ratings that have difficulty raising corporate bonds. They have characteristics between stocks and bonds. In particular, emerging wealthy individuals are interested in convertible bonds (CBs), which grant the right to convert into stocks at a predetermined price.

At the end of last year, the Santa rally continued, pushing the KOSPI to touch the 2600 level, but the market sentiment rapidly cooled from early this year. Asset owners tend to observe the market leisurely rather than pressing the buy button in response to such market changes.

Director Jo said, "I believe it is better to respond to situations rather than predict the market," adding, "Many prefer not to buy new products or consider products that can be held long-term rather than buying index-tracking products."

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