According to the Korea Financial Investment Association, money market funds (MMFs) in the South Korean market hit an all-time high of 130.118 trillion won in net asset value on August 5. The value soared by approximately 37% in this year alone.
Such a rapid increase was led by corporations rather than individuals. Enterprise customers accounted for 79% of the total net asset value and the ratio increased by 12 percentage points in less than five years and by eight percentage points in 2016 alone. The number of funds that have attracted at least 500 billion won in the market since the beginning of this year is 54 and no less than 33 out of them are MMFs for corporate customers.
At the same time, repurchase agreements (RPs) and bond funds are attracting an increasing amount of capital these days. This is because investors are reluctant to make an investment in spite of huge case reserves. The combined cashable assets of the 30 largest South Korean conglomerates jumped 396% from 25.5 trillion won to 126.5 trillion won between 2006 and last year. Most of the money is heading for MMFs with interest rates remaining low, KOSPI failing to make a breakthrough and companies being rather passive in R&D and M&A.
This trend has to do with risk aversion as well. “Investors are still in doubt of the fundamentals of emerging economies while the repercussions of Brexit are ongoing,” said Park Seung-jin, research analyst at Korea Investment & Securities, adding, “It seems that investors’ preference for low-risk assets will continue for the time being.”