A reader named C.H. writes in:

Hi Chris:
Think this might be a good question for people. I’m over here in the states vacationing (very nice and warm here in [city redacted], sorry) and was meeting with a financial adviser at my credit union here about retirement investing. he told me since we are non-residents of the us, we cant invest in mutual funds, ira’s etc since we dont have any us earned income. figure you could enlighten us on what investment options there are in korea. are there mutual funds etc we can put our money into? there has got to be something that as easy as buying into a mutual fund here.

thanks

[C.H.]

Hi C.H.,

I’ll start by saying I have no firsthand experience in this field, and cannot serve as a broker, adviser, or in any other official capacity. Consider this a Business major’s and blogger’s take, not the end-all, be-all source of knowledge. I owe thanks to Busan Mike, a British derivatives trader down in Busan for sending on some excellent information.

The good, the bad, the ugly

The good news: Korea’s foreign direct investment (FDI) is at a 10-year high as 2010 came to a close, having risen 12% in 2010. Korea’s stock market, the KOSPI, is doing well for itself, and the Korea Exchange English-language site explains things quite nicely. That FDI is sought by the various levels of the Korean government is a good thing, and official support is available for even the casual Google search to find. Gyeonggi-do’s official website (the province that surrounds Seoul) even shows off their list of investors from across Europe, Asia, and the Americas.

Some official support for those desiring to do business in Korea:

http://english.seoul.go.kr/db/iseoul/support.php

http://global.seoul.go.kr/ (select ‘Business’ from the top toolbar)

The bad news: too much of that support seems like fluffy window dressing, intending to appear helpful while (anecdotally speaking) behind-the-scenes obstructions seem to appear from nowhere. As with Korean immigration regulations, what is prominently stated in public may change without notice or recourse. A certain level of xenophobia tends to get in the way of things, and an understandable language barrier may prevent foreign investors from getting information in a timely fashion.

The ugly news: getting your money out of the market may be a lot harder than you think. A primer on the Lone Star / KEB story can be found on Wikipedia, but in essence, a foreign investor found itself unable to sell its stake of the foreign exchange bank it had acquired in 2003. After seven years, three failed attempts, and any number of legal hassles later, they were finally able to sell their stake in November 2010. It’s a high-profile story that received plenty of international press, and will serve as a sign of caution for years to come.

‘But I’m not a business…’

But should that stop you, the individual investor, from considering Korea? That depends on your investment philosophy, your investment goals, and whether you can stomach the risks. Do your research in which stocks might be worth investing in, consider how the Korean-U.S. Free Trade Agreement will affect things, and move forward.

Moving forward

It’s still rather difficult for a foreigner to buy Korean stocks, so let’s explore an easier way for the individual investor.

Short of moving to Korea and finding your way into a Korean bank, start with American Depositary Receipts (ADR). Put simply, ADR’s are issued by an American bank, bought and sold in US dollars, pay dividends in US dollars, and avoids the cross-border and cross-currency risks. There are Depositary Receipts in other countries, but essentially they function in a similar way. Among others, Citi’s Depositary Receipt Services offers a wide range of data on these ADR’s. Korea-focused mutual funds are also available – again, do your research, read the prospectuses, and settle in.

The only problem with some ADR’s is that they are “lightly traded”, according to Mike. This can “lead to difficulties entering and exiting investment positions as well as inevitably leading to wider spreads in the market resulting in a lower return on investment, particularly over the shorter term”.

Mike’s final piece of advice: “For someone who hasn’t got specific companies in mind, but wants exposure to… Korea, there might be something to be said for finding an index-tracker/ETF that covers the Korean market.” ETF stands for Exchange-Traded Funds, and a good introduction on ETF’s is easily found. One of the biggest ETF’s in the Korean market is EWY,, and more can be seen on the New York Stock Exchange. For the latest business news in Korea, there’s Koreabusinessnews.com (because what else would you expect with that domain name?). One less obvious name that came up buy in some search was the Samsung Economic Research Institute – not unlike the Wall Street Journal in some areas, but watch out for the use of Korean buzzwords. Free registration gets you access to the articles.

If you’re looking to work with a person, most of the major Korean banks have some English help. Head to the global center or global branch of the respective banks (not interested in name-dropping here – use the bank that works for you) for a better shot.

In short, there are ways to get relatively involved in the world of Korean finances, but it’s best to expect a few hiccups or roadbloacks along the way if you’re not Korean.

Readers: do you have any money in Korean businesses or the Korean stock market? Any tips you’d like to pass on?

Disclaimer: Chris in South Korea does not endorse any specific investments or investment tactics, and has zero money in any stock market.

Ratings (out of 5 taeguks): How do I rate destinations?

© Chris Backe – 2011

This post was originally published on my blog,Chris in South Korea. If you are reading this on another website and there is no linkback or credit given, you are reading an UNAUTHORIZED FEED.

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