SEOUL, Aug. 9 (Korea Bizwire) – South Korean investors have been putting a large amount of money in high-return bond funds amid weak economic growth this year, with stock funds suffering a massive outflow, data showed Tuesday.
According to the data by fund researcher Zeroin, local investors added a net 5.87 trillion won (US$5.3 billion) into funds investing in domestic and overseas bonds between the start of this year and last Friday.
In contrast, a net 4.6 trillion won exited investment funds reserved for local and overseas stocks during the period.
Market watchers said bond funds have been attracting funds from investors since June, with equity investment funds suffering a net outflow.
The trend comes despite the fact the yield gap, or the difference between the expected rate of return on stocks and the yield on state bonds, has been widening in recent months.
“The yield gap recently soared to a three-year high of 8.8 percentage points, but investor money continues to flow into bond funds,” said Oh On-soo, a researcher at Hyundai Securities. “The trend is expected to continue in the second half in the wake of a corporate restructuring drive.
South Korea has been ramping up its efforts to overhaul ailing companies, a move aimed at preventing their financial troubles from weighing down Asia’s fourth-largest economy, struggling with falling exports and anemic domestic demand.
After conducting a credit risk analysis on 602 companies, Seoul on Sunday said 32 embattled large companies should carry out restructuring.
Meanwhile, separate data showed money market funds (MMFs) drawing a large amount of money from investors who are increasingly turning to short-term financial instruments amid a weak stock market and low interest rates.
The net asset value of MMFs hit an all-time high of 130.1 trillion won as of last Friday, according to the data by the Korea Financial Investment Association. MMFs usually invest in short-term debt securities, such as Treasury bills and commercial papers, and are widely considered as safe as bank deposits but with a higher return.