South Korean stocks would benefit once a Saudi Arabian sovereign wealth fund increases its assets and adopts a more aggressive investment strategy, according to a Korean brokerage report that expects additional $40 billion from the fund would flow into the South Korean stock market starting as early as next year. Such capital inflow would boost total foreign investment in Korean stocks 10 percent from the current level, it added.

According to KDB Daewoo Securities Co. on Thursday, as the Middle Eastern country has decided to increase its sovereign wealth fund’s assets and adopt an aggressive investment strategy, tens of trillions of won worth money could flow in the Korean stock market from the country’s sovereign fund.

Deputy Crown Prince Mohammed bin Salman recently said in a foreign media interview that the country would reduce its reliance on profits from energy by shifting its focus to financial and investments within 20 years. Citing his comment, Kim Hyung-rae, an analyst at KDB Daewoo Securities, said it is “highly likely” that the sovereign wealth fund would invest more in the local stock market with its increased assets under management.

Prince Mohammed said the country plans to sell less than 5 percent stake in Saudi Arabian state-owned oil company Aramco via an initial public offering (IPO) and transfer the remaining shares to the Public Investment Fund (PIF). This would create the sovereign wealth fund giant with more than $2 trillion (about 230 trillion won) assets under management. This is more than twice of $824.9 billion operated by Norway`s Government Pension Fund Global (GPFG).

PIF has recently announced that it would increase its investments in foreign assets from a mere 5 percent share of total assets to 50 percent by 2020, indicating that the sovereign wealth fund is gearing up to find new profit sources amid low oil prices that have taken a heavy toll on the country’s fiscal balance.

The analyst added that taking account of asset allocation strategies and investment portfolios of sovereign wealth funds from other oil producing countries, PIF could invest $40 billion, or 2 percent of its total assets, in Korean stocks. If the Saudi Arabian fund injects $40 billion in Korean shares, the Middle Eastern country’s holding of Korean stocks would be the second largest following that of the United States.

By Yong Hwan-jin

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