'Waiting Funds' Increased by 30 Trillion in Two Months... Money Move Aiming for Short-Term Profit (Comprehensive)

Investment Funds Remaining in Demand Deposits
Interpreted as Short-Term Profit Use Due to Free Inflows and Outflows
Rising Again Amid Stock Market Correction Phase

[Asia Economy Reporters Kangwook Cho, Minyoung Kim] Large sums of idle funds that have not found investment destinations are piling up in banks. Despite ultra-low interest rates that make it difficult to expect returns, demand deposits have increased by 30 trillion won over the past two months. As concerns grow that the global economy is entering a long-term recession tunnel due to the resurgence of COVID-19, it is interpreted that money is temporarily "staying" in deposits that can be cashed out at any time. There is also an interpretation that "smart money" seeking short-term profits has flocked to places where deposits can be freely withdrawn and deposited, in line with the stock and real estate investment boom.

According to the financial sector on the 7th, the balance of demand deposits at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?was recorded at 552.5864 trillion won last month. This is an increase of about 16 trillion won compared to the previous month (536.6678 trillion won). Bank demand deposits include funds that can be deposited and withdrawn at any time, such as demand deposits and money market deposit accounts (MMDA). They strongly represent "waiting funds" that have not found investment destinations. The interest rate is also almost zero, at around 0.1%.

The balance of demand deposits, which decreased by more than 7 trillion won in January this year, surged by a whopping 24.738 trillion won in February when the spread of COVID-19 intensified. The upward trend continued until June (23.5667 trillion won). The increase in demand deposits during this period reached 80 trillion won. In July, when COVID-19 seemed to be entering a calming phase, about 11 trillion won was withdrawn. It is analyzed that various investment funds were deployed as the market gradually revived. Especially, novice investors called "Donghak Ants" joined the stock market. This coincided with the time when SK Biopharm recorded a "listing jackpot," sparking a stock market frenzy. The increase in individual interest in the stock market, similar to the beginning of the year, was influenced by major public offering issues. In the real estate market, a "panic buying" phenomenon appeared.

From 'Waiting Funds' Seeking Investment to 'Smart Money' Chasing Short-Term Gains

However, only briefly, the balance of demand deposits increased again by 13.3 trillion won in August. The amount increased over the recent two months of COVID-19 resurgence approaches 30 trillion won. Although time deposits, a safe asset, also increased by about 8 trillion won during this period due to concerns about economic uncertainty, the increase in demand deposits exceeded this by more than four times.

During this period, the KOSPI faltered, and trading volume also decreased accordingly. The financial sector diagnosed that the booming stock market entered a correction phase from mid-August.

An official from a commercial bank said, "The preference for demand deposits, which allow free deposits and withdrawals, is increasing more than locking money in time deposits for six months or a year," adding, "As interest rates fall, it seems to be waiting funds for better products than bank deposits, such as real estate or stock investments."

The market views the large sums of money flowing in and out of demand deposits as a kind of "smart money" that moves chasing profits. Smart money refers to funds that move quickly seeking high-yield short-term gains. Although money is overflowing in the market due to lowered interest rates and government liquidity supply, it is also interpreted that money is not moving properly because the overall profitability of the economy has declined. Therefore, there is a phenomenon where tens of trillions of won flow out and then flow back in all at once, driven only by short-term gains.

Prevalence of Fund Immobilization... Concerns Over Future Liquidity Bubble

Following fund immobilization, voices are also raising concerns about a "liquidity bubble." Despite a large amount of money being supplied due to ultra-low interest rates, it is pointed out that market funds remain as cash assets without circulating through investments. This is also interpreted as meaning that money is not moving because the overall profitability of the economy has declined. Accordingly, there are calls for mid- to long-term productive investments, especially to channel money into the industrial sector.

Professor Taeyoon Sung of Yonsei University's Department of Economics said, "Although liquidity supply in the market is abundant, the difficulties in the real economy are significant, so the phenomenon of fund immobilization, where both individual and corporate funds lose their destinations and remain stagnant, is intensifying," adding, "Waiting funds are likely to flow immediately to places with even slightly higher returns."

He continued, "For this phenomenon to disappear, the real economy fundamentally needs to improve," emphasizing, "The government should ease various regulations so that companies can invest funds in new businesses."

This content was produced with the assistance of AI translation services.