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ETFs, hedge funds grow as stock funds wither

All News 11:25 September 07, 2016

SEOUL, Sept. 7 (Yonhap) -- Money is on the move in South Korea's capital market, as investors are increasingly shifting to alternative vehicles such as exchange traded funds (ETFs) and hedge funds away from stock funds.

Analysts attribute the trend to a profit-taking run from the KOSPI's recent rally.

Traders are not convinced that the KOSPI, currently stuck in a tight range below 2,100 points, will further rise amid uncertainties at home and abroad.

South Korea's stock funds, excluding exchange traded funds (ETFs), have continued to record net outflows for nearly four weeks, losing more than 2 trillion won (US$1.82 billion), according to industry data.

Net redemptions totaled 2.23 trillion won for 26 consecutive trading days from July 29-Sept. 5, the longest-losing streak since 2013, when a total of 7.3 trillion won flew out of stock funds for 47 trading sessions in a row.

The redemption of domestic stock funds is leading the exit of money this time, causing net outflows of 1.95 trillion won. Overseas stock funds saw net outflows of only 277.8 billion won during the period, with net inflows posting on three trading days.

"The redemption drive of domestic stock funds is in line with the pattern of selling when the KOSPI hovers over 2,000 points and buying when it's in the 1,900-point level," Moon Soo-hyun, an analyst at NH Investment & Securities Co., said. "A desire for redemption has increased as the KOSPI has risen since July."

Another main reason is that investors in the South Korean equity market are not confident that the KOSPI will keep going up, said Kim Yong-koo of Hana Financial Investment.

Stock funds are expected to continue to suffer net outflows unless the KOSPI gains strong momentum to exceed 2,100 points toward an all-time high level, added Moon.

A computer-generated image of stock funds. (Yonhap)

Kim of Hana Financial Investment also cited the possibility of the U.S. Federal Reserve raising the key interest rate within this year.

"It may be possible for the KOSPI to rise beyond the 2,100-level next year if the Fed hikes the rate in December, not in September, and its modest policy stance is confirmed," he said.

In sharp contrast to the waning popularity of stock funds, traders are increasingly turning to other investment vehicles including ETFs and hedge funds.

The net assets of ETFs here expanded to 23.7 trillion won as of Monday, up 2.6 trillion won from the end of last year.

"Inverse ETFs have seen huge capital inflows amid the spread of a view that the KOSPI has hit the ceiling and stock prices will decline," Choi Chang-kyu, an analyst at the NH Investment & Securities Co., said.

Hedge funds and real estate funds are also drawing more money as well. Local hedge funds' assets under management came to 6.26 trillion won as of Monday. Currently, 163 hedge funds are in operation here by 49 managing firms.

"The hedge fund market is likely to keep growing since securities companies such as Tauraus and Korea Asset are tapping into it," Choi said.

The volume of real estate funds here grew to 40.1 trillion won in the first half of this year, a sharp increase from 4.2 trillion won in 2006.

"The ratio of real estate funds to the entire funds climbed to 8.8 percent as of end-June from 1.7 percent in 2006," Hwang Kyu-wan, an analyst at Daishin Securities Co., said.


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