Fundamentals are in favor of wealth management business in South Korea
South Korea is Asia’s (EEMA) fourth-largest economy and expectations are high for the foreseeable future. In recent years, it has emerged as one of the most attractive countries for the wealth management business given its large growing affluent population. It’s stock markets have also outperformed all major emerging markets (EEM) in 1Q17, except India.
South Korea’s GDP is growing at a pace of 2.8% annually, higher than most western markets. Rising wages also mean that the proportion of the wealthy in the country is increasing annually. In the past years, people with investable assets greater than $1 million had grown at a faster pace in South Korea (EWY) than other Asian countries. As per a 2016 KPMG report, in 2015, the population of HNWIs (high net worth individuals) grew to 192,000 and wealth rose 2.7% to $530 billion.
However, GDP growth has slowed down in the last quarter of 2016, and some economists fear that the economic boom may be over. The country’s rising political tensions involving the first lady President Park Geun-hye and the corruption scandal at Samsung (SMSN) is hampering the country’s growth trajectory. In the second half of 2016, investment into construction has slowed down and private consumption expenditure is also moving downwards.
Seb Dovey, managing partner at Scorpio, a market research firm believes South Korea is a tough market for international banks to operate. In a conversation with Financial Times, Seb Dovey mentioned, “In some ways, in spite of the strength and scale of the market, South Korea has at times been over-looked by the international banks in favor of markets such as China (FXI), Taiwan (EWT) and even Japan (EWJ). Partly, a barrier to access is that Koreans are very much inclined to do business with other Koreans and there is a limited population of private bankers at international banks to meet this need.” However, he thinks that the country’s fundamentals are solid and are supported by strong GDP growth, and a rising high net worth investor (HNIs) community. Wealth management in this country should flourish in the next 5-10 years once the market matures similar to North America, Europe and Australia.