Equity funds in Korea gain on bull market, bond funds dwindle

By Son Ji-hyoung

Stock market momentum and a looming key rate hike by the central bank in South Korea drove up domestic equity fund investment, while leaving local bond funds bearish, data showed Sunday.
Riding the stock bull run in both the first-tier Kospi and second-tier Kosdaq, private and public equity funds in Korea had 78.6 trillion won ($72.3 million) of net assets as of Wednesday, according to data compiled by the Korea Financial Investment Association.
The net asset volume has gradually increased by 22 percent -- or 14.2 trillion won -- since November 2016, when equity funds had 64.4 trillion won of net assets, the lowest figure in about a decade. Over the cited period, Korea’s first-tier Kospi jumped 29.7 percent.
Market watchers expected private and public equity fund to hold over 80 trillion won of net assets. The above-80 trillion won region was left untapped since December 2013.
In May 2008, ahead of the US financial crisis, equity funds had a record-high 143.8 trillion won of net assets.
In contrast to the stock uptrend, the highly expected decision by the Bank of Korea on Thursday to end its monetary easing policy is posing a threat to the 100 trillion won threshold on bond funds’ net assets. Korea’s central bank has kept the rate at a record-low of 1.25 percent since June 2016.
Bond funds held 100.3 trillion won of net assets as of Wednesday, a 5 percent drop from that of the end of September at 105.6 trillion won. Over the cited period, the three-year government bond yield rose 0.28 percentage point, while the five-year treasury yield soared 0.25 percentage point, meaning the bond market in general went bearish in the past couple of months.
The volume of bond funds’ net assets surpassed 100 trillion won for the first time in history in May.
(consnow@heraldcorp.com)