It is becoming increasingly difficult for approximately 1,000 trillion won worth of hot money to find investment destinations with the Bank of Korea having lowered the key rate to 1.5 percent in July and to 1.25 percent this month. Despite the lowered interest rate, investors are reluctant to invest in the stock market with South Korea’s economic recession continuing for seven months, and they are likely to focus on more profitable and stable short-term events such as REITs and certain apartment applications. The extremely low key rate is likely to continue for a while with the central bank predicted to lower the rate again in the first half of next year. Under the circumstances, individuals with investment money are advised to concentrate on balanced asset distribution while lowering their investment return expectations.
The Bank of Korea announced on Oct. 20 that hot money in South Korea, which includes cash, demand deposits, money market deposits and funds, and cash management account deposits, added up to 989,679.5 billion won as of the end of June this year.
At present, fixed interest products such as deposits and installment savings are not attractive at all for those having the money with the expected interest return at slightly over 1 percent. Still, they are unlikely to move to direct investment means such as the stock market in that hot money has a tendency to avoid risks.
Under the circumstances, financial companies are recommending products with an expected annual return of 3 percent to 5 percent. Examples of the products include blue-chip stocks with a dividend yield of around 4 percent, dividend REITs with a fixed return, and overseas bond funds.
The popularity of new apartments in Seoul and the metropolitan area is likely to increase. Those having the money are relatively more free from loan regulations and tax burdens and more and more of them are waiting for lucrative apartments.