AKBC e-Newsletter November

AKBC - E-NEWSLETTER NOVEMBER

Dear Subscribers,

This past week, the focus at the Australia-Korea Business Council has been on deepening our engagement in superannuation and asset management. We have explored avenues to enhance collaboration between Australia and Korea in the financial services sector and were delighted to welcome a delegation from the Korea Financial Investment Association (KOFIA) including members from major Korean investors NPS and Hanwha. While there are numerous possibilities for strengthening our ties, we also acknowledge that challenges must be navigated to enhance investment flows.

Australia and South Korea boast robust national systems for retirement savings, established in 1991 and 1988, respectively. Australia’s superannuation funds collectively hold an impressive $3.9 trillion AUD, while South Korea’s National Pension Service (NPS), the third largest pension fund in the world, manages over $800 billion USD. Despite these large holdings, the investment flows between our two nations do not fully reflect the strength of our trade relationship. Korea is Australia’s fourth largest trading partner, yet it ranks as the 19th largest investor in Australia, with reciprocal investments also trailing behind potential.

We recognise several challenges that inhibit deeper investment ties. Regulatory frameworks in Australia, particularly around the Your Future, Your Super performance test, often discourage Australian funds from increasing exposure to Korean markets. Additionally, demographic shifts in Korea, with projections suggesting the NPS could deplete by 2056, raise concerns about long-term fund sustainability and potential impacts on productivity. Furthermore, passive investments in Korean equities are often seen as less attractive due to lower returns compared to more developed markets such as the US, compounded by a less developed financial system in Korea.

Despite these challenges, we see significant opportunities for greater investment both-ways, particularly in areas aligned with our shared commitments to decarbonisation. Both our nations aim for net zero emissions by 2050, necessitating substantial capital for sustainable projects. This alignment in environmental goals opens up avenues for joint investments in sustainable development. Additionally, as both countries are actively pursuing investment opportunities, there are promising prospects for co-investment in third markets. For instance, Australian superannuation funds could collaborate with Korean partners in markets like Vietnam, targeting sectors such as renewable energy and infrastructure, where Australia can benefit from Korea's established strength and expertise, thereby sharing risks and leveraging mutual advantages.

The potential for increased Korean investment in Australia is particularly promising. With its AAA credit rating, consistent population growth, and strong economic fundamentals, Australia offers a range of attractive investment opportunities in sectors like sustainability, digital technology, and social infrastructure. These sectors not only promise low risk and strong returns but are also crucial for our transition towards a more sustainable and technologically advanced economy.

To capitalise on these opportunities, it is crucial to foster stronger relationships and networks. Regular interactions and strategic introductions to pension funds, asset managers, and key stakeholders in both countries are vital. The AKBC is well positioned to facilitate these introductions and to help position our members for successful collaborations with Korean investors. The AKBC has a proven track record of facilitating successful collaborations, such as our recent delegation that connected Australian mining companies with Korean investors. As we move forward, our focus will remain on strengthening these ties and enhancing our bilateral investment relationships. We invite our members to engage with us in upcoming events and initiatives to explore these dynamic opportunities further.

Sincerely,

Liz Griffin

CEO

Australia-Korea Business Council