President Jung Il-moon of Korea Investment and Securities Co. (Photo: KIS)

Korea Investment & Securities is quickly becoming Asia’s leading investment bank, as it increases its presence in major global markets while securing a stable profit model.

The Korean securities firm has been pursuing a two-track model combining investment banking with asset management and trading, with aims to develop a stable profit model. As a result of such efforts, Korea Investment & Securities posted net profit of 410.9 billion won ($364 million) in the third quarter of this year.

The firm’s return on equity -- a measure of financial performance calculated by dividing net income by shareholders’ equity ― stood at 12.7 percent, well above the industry average, during the cited period.

Profits were dispersed evenly across different categories as well, with consignment sales accounting for 22.4 percent, asset management for 13.7 percent, investment banking for 22.4 percent and asset investment 21.6 percent.

“Though Korea’s securities market in the third quarter experienced a slump, Korea Investment & Securities was able to reap formidable earnings through synergy among its diverse business areas,” the company said.

The amount of the Korean investment in foreign real estate in the first half of 2019 has reached about US$ 6.6 Bn, hitting the highest it has ever been in the half-year period history, due to the aggressive purchases of the Korean securities and asset management firms.

According to the Korea Financial Investment Association, the amount of overseas real estate funds and investment discretionary contracts including both public and private funds that were settled by the end of June 2019 were about US$ 6.58 Bn.

If these trends continue, the amount invested in the foreign real estate funds at the end of 2019 will exceed US$ 8.65 Bn. Nevertheless, this result has not been surprising as the size of overseas real estate funds has continued to increase in recent years, as seen in Figure 1.1.

The cumulative investment, inclusive of the first half of 2019 totaled over 40.17 US$ Bn. However, this amount refers directly to overseas real estate investment that was settled in Korea as a fund.

Therefore, it is estimated that the actual investment amount may be larger considering foreign direct investments and offshore funds.

We believe, one of the primary reasons for this growth in overseas real estate investments, is due to the lack of access to low-interest rate real estate products both domestically and internationally.

As a result, the desire for these types of products has extended beyond traditional institutional investors to individuals, further opening the market.

Additionally, domestic securities firms have been aggressively investing in real estate in order to strengthen their investment banking division and have been acknowledged by local sellers based on the display of positive capital strength.

In terms of regionality, West Europe has received investment interest, given the relatively higher rate of return versus the United States. Western Europe’s appeal reflects the Euro affording loans at 1% interest rate and offering foreign exchange swap premium of more than 1.5%.

According to South China Morning Post, Korean investors have begun to outpace Chinese investment dollars in Europe, primarily driven by the Chinese government continuing to limit overseas real estate investment since 2016.

In his first press conference as CEO held on Jan. 7, Jung said, “The company’s operating profit before taxes last year is tentatively estimated at some 600 billion won (US$536 million), a new record. This year’s goal is to reach 1 trillion won (US$893 million) in operating profit.”

Jung proposed core strategies to accomplish this year’s goal of 1 trillion won (US$893 million) in operating profit, including the creation of synergy between subsidiaries and headquarters, the optimization of resource utilization and thorough risk management and the improvement of digital finance competitiveness.