The total amount of principal invested in domestic bond-type funds has topped 120 trillion won (US$101.82 billion) for the first time as a large amount of investors' money keeps flowing into bond funds, which are considered risk free assets, amid concerns about the slowdown of the Korean economy.
The total value of local bond-type funds came to 120.49 trillion won (US$102.24 billion) as of July 22, according to the data released by the Korea Financial Investment Association (KOFIA) on July 24. The figure increased 18.73 trillion won (US$15.89 billion) from 101.76 trillion won (US$86.35 billion) at the end of last year. In contrast, that of equity-type funds decreased nearly 4 trillion won (US$3.39 billion) over the same period.
The aggregate size of domestic bond-type funds shrunk to 93 trillion won (US$78.91 billion) at the end of February last year, but it surpassed 100 trillion won (US$84.85 billion) in nine months in July last year.
The figure approached an inflection point early this year. Bond funds swung into a net inflow, with the capital inflow getting stronger with time. The total value of bond-type funds grew from 104 trillion won (US$88.25 billion) at the end of January to 109 trillion won (US$92.49 billion) in March. The figure increased 4 trillion won (US$3.39 billion) in a month in May and then 3 trillion won (US$2.55 billion) again in June.
In particular, the inflow of money into bond funds also gained momentum with expectations that the U.S. Federal Reserve (Fed) will cut interest rates at the end of this month. After Fed Chair Jerome H. Powell suggested that he would use monetary policy to stimulate the economy, expectations for lower interest rates have been growing. This has helped capital inflow into bonds at a steady and strong pace.
Institutional and corporate investors strengthened risk management with the current variability in the stock market, growing the size of bond-type funds as well. As they expanded the portion of bond investments to avoid volatility in the stock market, new funds flowed into bond-type funds. An official said, “We should note that most funds of corporate investors, such as the National Pension Service and institutions, were invested in bonds. Particularly, long-term investment institutions, mainly insurance companies, shifted their investments to bonds in the first half of the year when the stock market looked gloomy.”
There is even a fund which grew over 2 trillion won (US$1.70 billion) in size in the first half. Nearly 2.20 trillion won (US$1.87 billion) of money flowed into “Tong Yang High Plus Bond Fund” by Tongyang Asset Management Corp. since the beginning of the year and 321.30 billion won (US$272.63 million) over the past month.
Some funds grew almost 40 times in size. The value of “PIMCO Global Investment Grade Bond Fund” by ABL Global Asset Management Co., which fell short of 10 billion won (US$8.49 million) at the end of last year, currently comes to 400 billion won (US$339.41 million).