'Flight to Safety' Continues

Home > Business > Finance

print dictionary print

'Flight to Safety' Continues

Song Hoon, who develops investment products at Citibank Korea, surveyed the bank's customers last year about two new bonds fund possibilities - one that invests in government bonds and the other in corporate debt.

Customers were unanimous in saying they would put their money in a government bond fund but not a riskier corporate bond fund. The bank scrapped its plan for a corporate-bond fund but set up last August a tax-free product that invests in state and public bonds. Investors put 645 billion won ($482 million) in the fund through last month.

In the bond market, too, investors like bonds with good credit ratings and turn a cold shoulder to higher-risk debts.

Investors' preference for safe assets has resulted in a widening difference the yields on government bonds and BBB-minus corporate debt. The yield on the three-year state bonds declined by nearly 55 percent to 5.58 percent as of Saturday from 12.3 percent in September 1998. During the same period, the average yield on three-year non-guaranteed BBB-minus corporate bonds fell to 12.67 percent from 16.24 percent, a 22-percent drop.

"Since the collapse of the Daewoo Group in 1999, investors have become increasingly aware that all investment entails risks," said Sung Keum-sung, an executive at Hyundai Investment Trust & Management Co. "The love affair with sound assets will persist for the time being."

Shattering the long-held belief in "too big to fail", the Daewoo crisis sparked a flight to safety, prompting investors to shift their money from non-banking sectors to bank accounts - especially at healthy banks.

Investors yanked a total of 81.7 trillion won from investment trust companies, the hardest hit by the Daewoo's failure, from late August in 1999 till the end of March, while merchant banks saw an outflow of 19.8 trillion won during the same period. Most of the funds flowed into accounts at the nation's healthiest banks such as Kookmin Bank, H&CB and Shinhan Bank. Foreign banks also benefitted. Deposits at Citibank Korea surged 48 percent from 1998 until the end of February.




by Chung Jae-hong

Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)