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South Korea funds’ NAV falls in September for first time in six months

By Asia Asset Management  
October 24, 2019

South Korean mutual funds’ net asset value fell 0.4% in September, snapping five consecutive monthly gains as investors cashed out of money market funds (MMFs) to meet quarterly demand for financing and portfolio rebalancing needs, according to an industry group.

Total NAV of mutual funds declined to 635.3 trillion won (US$542.2 billion) last month from 637.9 trillion won in August, the Korea Financial Investment Association (KOFIA) says in a report on October 18.

It attributes the decrease primarily to investors pulling out of MMFs for corporate financing and portfolio rebalancing purposes, which typically occur at the end of each quarter. There was a net outflow of 8.2 trillion won from these funds, and their NAV fell 7.3% to 8.1 trillion won.

Securities funds also suffered the same fate, albeit by a smaller 2.1 trillion won, though their NAV rose as domestic stocks recovered on the back of a bullish US stock market, and China’s central bank cut reserve requirements to boost lending and spur the economy.

The NAV of securities funds rose 0.6% to 263 trillion won.

The People’s Bank of China on September 6 lowered the reserve requirement ratio – the amount of reserves domestic banks have to keep with it – by 0.5%.

In the US, the S&P 500 rose to its highest level since the end of July on September 12.

South Korea’s stock market benchmark topped 2,100 points on September 24, the highest level in three months.

Andy Jung, director of manager research at Morningstar Korea, says investors appear to be taking a short-term approach as sentiment worsens amid concerns about a domestic economic slowdown. External factors, including the US-China trade war, have also driven up domestic market volatility.

“We believe it’s important for investors to focus on a long-term investment horizon rather than short-term trading. For example, Korea is an attractive market in terms of value from a long-term perspective,” Ms. Jung tells Asia Asset Management (AAM), adding that the current market valuation offers “quite attractive” reward for risk.

According to a Hong Kong-based fund analyst, retail investors in South Korea are expected to become more risk averse regardless of short-term stock market movements, and switch to investments seen as being less risky, such as bonds.

“Many investors are taking a more defensive position as they expect the global economy to be in a downward cycle. They are expected to increase allocation to less risky fund products such as MMFs and bond funds,” the analyst tells AAM, speaking on condition of anonymity.

Total assets under management of Korean mutual funds fell 0.6%, or 4 trillion won, to 631 trillion won in September.