"Domestic Stock Market Outlook Positive"...Money Flows into Equity Mutual Funds After 7 Months

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Funds flowed into domestic equity public offering funds for the first time in seven months. This is interpreted as reflecting positive expectations for the domestic stock market.

According to the Korea Financial Investment Association on the 6th, the amount set for domestic equity public offering funds (including Exchange Traded Funds (ETFs)) in May was 5.5768 trillion KRW, and the redemption amount was 3.7158 trillion KRW, resulting in a net inflow of 1.861 trillion KRW.

This is the first monthly net inflow of funds into domestic equity public offering funds since October last year (1.2854 trillion KRW), and the inflow is analyzed to be driven by positive outlooks on the domestic stock market. Kim Hoo-jung, a researcher at Yuanta Securities, said, "In October last year, the inflow was mostly concentrated in sector funds such as Information Technology (IT) and the new economy, but this time, a lot of funds flowed into index-related funds representing the entire market, such as KOSPI 200 or KOSDAQ 150," adding, "Investors seem to believe there is a probability that the index will follow an upward trend, which has increased the inflow."

According to financial information provider FnGuide, as of the 28th of last month, 343.5 billion KRW flowed into KOSPI 200 funds and 529.5 billion KRW into sector funds among domestic index equity funds over the past month. Compared to October last year, when 86.2 billion KRW flowed into KOSPI 200 funds and 527.1 billion KRW into sector funds, the proportion of inflows into index-related funds has increased.

Recently, the KOSPI has risen to the 3,240 level, attempting to break its previous high. Additionally, the relative decline in attractiveness of other investment assets such as Bitcoin is also cited as a factor. For overseas equity public offering funds, a net inflow of 219.3 billion KRW was recorded last month, marking the smallest scale since October last year (140.5 billion KRW). This is analyzed to be due to the weakness of technology stocks, which are preferred by domestic investors.

Excluding ETFs, domestic equity public offering funds also recorded a net inflow (41.2 billion KRW) for the first time since April last year, drawing attention to whether there will be a change in the 'money move' trend where funds shift from funds to direct investment. Since the 'Donghak Ant Movement' boom last year and the subsequent stock market rally, investors have preferred direct investment over indirect investment such as funds. Regarding this, researcher Kim said, "For that to happen, funds need to flow into active funds, but the scale of inflows into index funds is much larger," adding, "The signal is still weak."

This means that rather than actively seeking excess returns by entrusting management to securities firms (active funds), funds are more often used as a means to track indices (index funds).

However, the need to revitalize public offering funds is continuously raised. Kwon Min-kyung, a research fellow at the Korea Capital Market Institute, pointed out in a report titled 'The Need for Policies to Revitalize Public Offering Funds' that "Direct investment methods involve significant mental and time burdens," and "Moreover, inexperienced individual investors often fall into impatience trying to achieve large short-term gains, resulting in irrational investment behaviors that violate investment principles and lead to poor performance." He emphasized, "(Indirect investment) involves experts establishing investment strategies and executing trades on behalf of investors, greatly reducing the hassle associated with direct investment," and "Even knowledgeable investors cannot possibly monitor and trade all detailed securities across asset classes daily, so indirect investment methods are somewhat necessary for everyone."