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Biz News Korea(Eng)
Korea’s MMF hits record high amid risk aversion
- Collected
- 2016.08.11
- Distributed
- 2016.08.12
- Source
- Go Direct
South Korean investors are turning to money-market funds (MMF) short-term returns amid low interest rates and shaky economic outlook at home and abroad.
According to the Korea Financial Investment Association on Tuesday, the net asset value of the country’s MMF has hit an all-time high of 130.2 trillion won ($119 billion) as of last Friday, the highest since March 6, 2009 when it reached 129.6 trillion won in the wake of the global financial crisis.
MMFs are designed to earn investors profits by investing in short-term debts, such as government bonds and corporate commercial papers. It returns about 1 percent per annum, relatively handsome considering bank rates hardly yield.
The recent surge in MMF accounts came after the United Kingdom’s decision to leave the European Union (EU) that has increased uncertainties on the global front. Ryu Hee-dae, head of Fixed Income Investment Division at Dongbu Asset Management Co., said an increasing number of investors are stashing their cash at MMFs or buying bonds that are largely investment-grade debts for short-term profits in a move to seek safe heavens.
Na Jung-hyeok, an economist at Hyundai Securities Co., also noted that investors are left with little option amid growing jitters over possible U.S. interest rate hikes within this year, the U.K.’s exit from the EU, and rising diplomatic tension between Korea and China following Korea’s recent decision to deploy the U.S. Terminal High Altitude Area defense battery system (THAAD) in the country. He added that foreign investors are unlikely to show strong appetite for local stocks for a while because of the strengthening of the won against the U.S. dollar.
The country’s benchmark Korean Composite Stock Index’s (Kospi) recent rally above 2,000 has also diverted investors’ attention to MMFs. “Not many investors expect the Kospi to further rise above the current level as the index has repeatedly retreated after surpassing 2,000,” said Lee Kyung-min, an analyst at Daishin Securities Co.
Market analysts expect MMFs to continue to draw more cash for a while. Yuanta Securities analyst Kim Hu-jeong expected risk aversion to remain high for some time, citing the Kospi trading in a boxed range and murky economic prospect at home and abroad.
According to the Korea Financial Investment Association on Tuesday, the net asset value of the country’s MMF has hit an all-time high of 130.2 trillion won ($119 billion) as of last Friday, the highest since March 6, 2009 when it reached 129.6 trillion won in the wake of the global financial crisis.
MMFs are designed to earn investors profits by investing in short-term debts, such as government bonds and corporate commercial papers. It returns about 1 percent per annum, relatively handsome considering bank rates hardly yield.
The recent surge in MMF accounts came after the United Kingdom’s decision to leave the European Union (EU) that has increased uncertainties on the global front. Ryu Hee-dae, head of Fixed Income Investment Division at Dongbu Asset Management Co., said an increasing number of investors are stashing their cash at MMFs or buying bonds that are largely investment-grade debts for short-term profits in a move to seek safe heavens.
Na Jung-hyeok, an economist at Hyundai Securities Co., also noted that investors are left with little option amid growing jitters over possible U.S. interest rate hikes within this year, the U.K.’s exit from the EU, and rising diplomatic tension between Korea and China following Korea’s recent decision to deploy the U.S. Terminal High Altitude Area defense battery system (THAAD) in the country. He added that foreign investors are unlikely to show strong appetite for local stocks for a while because of the strengthening of the won against the U.S. dollar.
The country’s benchmark Korean Composite Stock Index’s (Kospi) recent rally above 2,000 has also diverted investors’ attention to MMFs. “Not many investors expect the Kospi to further rise above the current level as the index has repeatedly retreated after surpassing 2,000,” said Lee Kyung-min, an analyst at Daishin Securities Co.
Market analysts expect MMFs to continue to draw more cash for a while. Yuanta Securities analyst Kim Hu-jeong expected risk aversion to remain high for some time, citing the Kospi trading in a boxed range and murky economic prospect at home and abroad.
By Kim Hye-soon and Kim Tae-joon
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