South Korean investors are making aggressive investments in overseas funds in diverse forms of stocks, bonds and derivatives while avoiding local securities, figures showed Wednesday. 

According to data from Korea Financial Investment Association, the accumulated amount of money invested in foreign funds stood at 78.9 trillion won ($67.5 billion), as of Wednesday. The figure hit 88.2 trillion won last Friday, the largest since 2007.

At the same time, the balance of cash management accounts hit a new record of 53.1 trillion won on Tuesday, the highest since April 18, as stock markets have showed sluggish performance.

The CMAs issued mostly by securities brokerage firms allow account holders to trade equities while earning from high interest on their cash balance, and are known as cash that is highly likely to head to securities markets.

A record high volume of the CMA balance could mean the funds are drifting out of local stock markets.

“Considering the high volatility in the local stock markets influenced by domestic political issues and some external factors, retail investors are taking a wait-and-see stance,” said a statistics officer at Kofia.

In the past, a higher level of CMA balance was considered a favorable factor for stock markets as the funds are supposed to be invested in stocks. But a recent trend shows otherwise.

“The recent atmosphere is that many are lost in terms of their investment,” said an industry insider. “Despite the highest CMA balance, Korea’s stock markets remain sluggish. I think the CMA funds might flow into foreign stocks or funds in the near term.”

The government’s tax exemption policy for foreign equity funds since early this year also led investors to such funds.

Non-taxation overseas equity funds were launched by local asset management firms and securities firms in late February for the first time, which was part of the government’s tax revision plan for this year.

According to Kofia data, about 238,000 accounts for the tax-exempt funds were created as of late October, holding a total of 934.2 billion won.

By country, the largest amount of investments was made in China with 181.1 billion won, followed by Vietnam with 161.7 billion won and the US with 25.8 billion won.

“Overall, investments in foreign funds ranging from equities, properties to derivatives are on the increase as investors seek for higher yields amid the low interest rates,” the Kofia officer said. “Money in domestic funds, in comparison to foreign ones, shrank around 100 billion won in November especially after the US election.”

By Song Su-hyun (song@heraldcorp.com)