Domestic equity funds are losing strength in the domestic public offering fund market. This is mainly due to the declining preference for the domestic stock market, which leads to instability even in areas of indirect investment. This impact is also attributed to the fact that it has been overshadowed by bond funds which have seen significant growth in recent years and by various thematic foreign equity funds.
According to fund rating agency FnGuide on April 29, the fixed amount of domestic equity funds stood at 47.18 trillion won ($34.31 billion) as of April 26. It is behind the national bond funds, which amount to 47.55 trillion won. Since the reversal first occurred based on the April 19 closing price, the same trend has continued.
The fixed amount, representing investment capital entrusted by subscribers to fund management for investment purposes, reflects capital outflows when they decrease. At the end of last year, these figures stood at 47.26 trillion won and 40.96 trillion won respectively, reflecting a difference of 6.31 trillion won. This disparity was even greater at the end of 2022, amounting to 18.21 trillion won, compared to 12.4 trillion won at the end of 2021.
Among domestic equity funds, the gap has narrowed significantly in the active category. The total fixed amount of all funds, which was 15.23 trillion won at the end of 2022, fell more than 9 percent to 13.84 trillion won as of April 26, a period of about four months. Meanwhile, the amount set for index funds increased 3.2 percent from 32.3 trillion won to 33.34 trillion won during the period.
An asset management industry executive said: “Investors are concerned about possible sudden revelations regarding issues such as corporate governance and unfair trading in domestic stocks. There is also a perception that index products, such as exchange-traded funds (ETFs) that track major indexes, end up outperforming over the long term. Comparing the returns of the last two years, active and index funds show returns of 3.24 percent and 6.97 percent, respectively.
The situation with ETFs is no different. The net asset value of domestic stock products increased 23.9 percent to 46.27 trillion won from 37.34 trillion won in the same period. However, domestic bond products saw a significant increase of 134.8 percent, from 11.64 trillion won to 27.33 trillion won. Likewise, foreign stock proceeds also jumped more than 72 percent, from 17.94 trillion won to more than 30.94 trillion won.
In particular, ETFs themselves are treated as individual listed stocks. This characteristic brings them closer to competitive products than to entities that develop in parallel with actions.
Basically, this is interpreted as the result of a lack of confidence in the domestic stock market, which has shifted to indirect investment vehicles such as funds. The “Korean discount,” which refers to the undervaluation of the Korean stock market, is seen as a factor that continues to hamper the fund market.
According to the Korea Stock Exchange, the annual purchasing amount in the domestic stock market, which stood at 6.769 trillion won in 2021, fell to 3.914 trillion won in 2022. Although it recovered to 4.809 trillion won last year, it is still below 5.0 trillion won. won the mark.
Rapid increases in policy and market interest rates over the past two to three years have led to an expansion of individual preferences for bond investments. Additionally, the emergence of consumer offering funds and ETFs investing in sectors such as materials, parts and equipment, as well as emerging markets that were previously difficult to access, has also contributed to a relative decrease in the factors that determine investments in domestic stocks.
