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Bond funds hit 20-year high in July on low appetite for risk

Economy 09:13 August 06, 2019

SEOUL, Aug. 6 (Yonhap) -- South Korean bond funds hit a new high in nearly 20 years in July as investors sought safe-haven debt amid escalating trade tensions, data showed Tuesday.

Local bond-focused funds had 121.37 trillion won (US$100 billion) under their management as of end-July, data by the Korea Financial Investment Association showed.

It was the highest figure since the 130.81 trillion won recorded in October 1999.

Local bond funds' assets increased on-month for the ninth consecutive month in July after a stock market plunge in October due to concerns over a trade war between the United States and China.

Bond funds hit 20-year high in July on low appetite for risk - 1

In contrast, stock funds have suffered a cash outflow this year. At the end of July, stock funds had 79.35 trillion won under management, the lowest level in 19 months.

Market watchers attributed the rise in bond funds' assets to investors' flight to safety amid rising trade tensions.

Washington and Beijing failed to find common ground when they held high-level talks in Shanghai late last month to resolve their trade dispute.

Making matters worse, Japan restricted exports of high-tech materials to Seoul on July 4, in apparent retaliation against a Seoul court decision ordering a Japanese firm to provide compensation for wartime forced labor.

Tokyo raised the stakes in the trade spat by removing South Korea from a whitelist of preferred export partners.

Bond funds hit 20-year high in July on low appetite for risk - 2

In addition, a series of short-range missile launches by North Korea raised geopolitical risks on the Korean Peninsula, sending investors scrambling for safer assets.

Hit by those negative factors, the benchmark Korea Composite Stock Price Index (KOSPI) sank 5 percent in July from the previous month, with the index for the tech-heavy secondary market plunging 8.7 percent.

But bond prices, which move inversely to yields, continued to go north with the yield on three-year Treasurys falling below the 1.3 percent mark.

Analysts predicted investors' flight to quality to continue for the time being amid no signs that those trade disputes may be resolved soon.

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