750 Trillion Won

 

The public subscriptions prior to the initial public offering of Samsung SDS that finished on Nov. 6 attracted 15.5 trillion won (US$14.2 billion) from individual investors with a competition of 134.9:1, as well as approximately 450 trillion won (US$411 billion) from institutional investors. Such a smash hit, however, shows that investors are having difficulty finding reliable investment destinations these days.

The Korean stock market, which showed some signs of a boom during this past summer on expectations of economic revitalization after the inauguration of Deputy Prime Minister and Minister of Strategy and Finance Choi Kyung-hwan, has stagnated again since mid-October. The key rate has been successively cut, major companies such as Samsung Electronics and the Hyundai Motor Group have released negative earnings records, and the depreciation of the Japanese yen has dragged down the index.

Under the circumstances, the money market fund (MMF) balance, which is a typical example of short-term floating funds, exceeded 100 trillion won (US$91.4 billion) for the first time in 62 months. As of Nov. 4, the amount totaled 100.9689 trillion won (US$92.27548 billion), the highest level since August 2009. The total short-term floating funds including cash, demand deposits, savings deposits, and cash management accounts (CMAs) is said to have broken the 750 trillion won (US$685 billion) mark to set a new high, too. “Investors are focusing only on safe assets, as the termination of quantitative easing by the Fed is poised to affect the Korean economy and stock market alike,” the Korea Financial Investment Association explained, adding, “Net inflow into the MMF amounted for 10 trillion won [US$9.2 billion] in October alone.”

According to a recent survey, those with at least 1 billion won (US$914,240) in financial assets have 47.9 percent of their assets in the form of cash and savings. The percentages were 13.5 percent for stocks and 11.5 percent for fund products.

The floating funds are flowing to equity-linked securities (ELS) and those providing dividends. This year, the total ELS issue topped 50 trillion won (US$45.8 billion) for the first time in history. According to the Korea Securities Depository, the ELS issue increased by almost 10 trillion won (US$9.1 billion) from a year earlier to 53.6101 trillion won (US$49.0800 billion) as of Nov. 5. It amounted to close to 7 trillion won (US$6.4 billion) in October this year alone. The dividend funds are swelling as well. No less than 2.5161 trillion won (US$2.3035 billion) flowed this year, whereas equity funds lost 3.4771 trillion won (US$3.1789 billion) during the period.

“The recent trend reflects that investors are failing to find attractive investment destinations,” said Samsung Securities analyst Kim Hong-bae, continuing, “They are just staying for a moment in the low-risk low-yield products. The popularity of ELS and dividend funds as of late has little to do with speculation.” A local private banker echoed the sentiment by saying, “The concentration of floating funds on such products is unlikely to result in stock market revitalization. Investors now seem to be waiting until any positive stock price, exchange rate or macroeconomic sign comes out.”

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