Investors flee equity funds

Investors have been withdrawing their investments from equity funds. The Korea Financial Investment Association said Tuesday that investors pulled out a net of 48.7 billion won ($43.9 million) as of Sept. 29. They invested 45 billion won but took out 93.6 billion won.

The last time net injection in equity funds was Sept. 19 as the Kospi’s movement has been boxed in, leading to disappointing profits. Investors have withdrawn 150 billion won from the equity market in the last eight trading days.

Retail investors’ withdrawals in the last five years has reached an estimated 60 trillion won, including equity funds, as the Kospi has struggled to advance.

Retail investors began to pull out their investments as the Kospi fell below 1,700 at the end of September 2011 due to the unstable European market and the S&P downgrade of the United States’ credit rating. Investors feared a repeat of late-2008, when the market plunged below the 1,000 mark.

The Kospi has since bounced back to the 2,000 mark but retail investors remain skeptical. Since September 2011, they have sold 36 trillion won in stocks on the Kospi and withdrawn 22.9 trillion won worth of investments from equity funds.

The three-month yield of equity funds as of Sept. 26 was 3.4 percent. The one-year yield is 1.6 percent and the 5-year yield is at 11 percent. This investment return is even lower than the 17.9 percent of bond funds’ five-year yield although bond funds usually have lower yield due to conservative investment strategies.

Even when compared to other financial products, stock investments or equity funds turned out to have lower profit returns than expected.

Retail fund investors expected an 8.8 percent profit return at the beginning of 2015, according to KB Financial Group’s research institute. However, at the end of the year they ended up with a 3.7 percent return. Additionally retail investors expected a 11.3 percent profit return but ended up with 5.8 percent.

Whether the investments were made directly or indirectly, the actual profit had a 5 percentage point difference with what investors expected.

“There’s a huge possibility that retail investors are leaving the local stock market because of the disappointing return,” said Shin Dong-joo at the Korea Financial Investment Association.

Retail investors also are leaving the local stock market because of the rising financial burden of jeonse, or lump-sum deposits on long-term rental apartments, which has increased in the last five years.

The absence of retail investors has been filled up with foreign and institutional investors like pension funds.

In the last five years while retail investors have been offloading their stock investments, foreign investors have net purchased 31.6 trillion won worth of stocks.

As of Sept. 30, foreign investors own 1,302 trillion won worth of Korean stocks on the Seoul primary market, which accounts for 34.5 percent. This is a 34 percent increase compared to 5 years ago when foreign investors only held 960 trillion won.

During the same period, pension funds purchased 35 trillion won in stocks.

Market analysts speculate that retail investors will likely return when the Kospi hits 2,200, backed by buying sprees from foreign investors.

BY LEE HO-JEONG, KO RAN [lee.hojeong@joongang.co.kr]