Korea's foreign exchange swaps market could double in notional size over the next year if ongoing talks between insurance companies and the Financial Supervisory Service (FSS) result in raising the cap on foreign investments, said traders in Seoul. Insurers are pressing the FSS to raise the cap--currently set at 10% of assets--because they are hungry for yield in Korea's low interest rate environment, explained an official at Samsung Life in Seoul. Increased investments in foreign stocks and bonds will spur currency hedging activity via the swaps market, he continued. Officials at the FSS declined to comment.
Dong Hyun Park, fund manager at First Fire & Marine, believes that the current cap is too low. He hopes regulations will be changed by next year, allowing First Fire to enjoy greater participation in foreign markets. Park continued that the company will look to increase its use of foreign denominated bonds and equities, as well as structured products, including foreign issued collateralized debt obligations and exchangeable bonds. "Anything that can give us a chance to pick up higher yield," said Park.
