The stock market is experiencing an all-time rally... but a cold wind blows over the Korean equity fund market

23 Consecutive Trading Days of Net Outflow in Domestic Equity Fund Market...Longest Record in Over 4 Years
'Donghak Gaemi' Direct Investment Boom Amid Private Equity Fund Controversies
Continued Inflow into Overseas Equity Funds Despite Lower Returns

[Asia Economy Reporter Minwoo Lee] As the KOSPI index entered the 2700 range for the first time in history and the upward rally continued, the domestic equity fund market has experienced record-breaking capital outflows. On the other hand, investments in overseas equity funds have significantly increased.

According to the Korea Financial Investment Association on the 10th, domestic equity funds excluding exchange-traded funds (ETFs) saw a net outflow of 154.4 billion KRW on the 8th. This marked the 23rd consecutive trading day of net outflows since March 6. It is the longest continuous net outflow record in over four years. During this period, a total of 1.9185 trillion KRW was withdrawn. The previous record was a 32-trading-day consecutive net outflow from July 29 to September 13, 2016, when a total of 2.4274 trillion KRW was withdrawn. In fact, the recent daily net outflow amounts have surpassed those of the previous record. On March 25, 253.9 billion KRW was withdrawn in a single day, which is the largest amount in four years since 314.6 billion KRW was withdrawn on July 18, 2016.

Conversely, overseas equity funds have seen steady capital inflows. As of the 8th, there was a net inflow of 34.6 billion KRW, marking 18 consecutive trading days of net inflows. This is the longest continuous record since October 2017. During this period, 1.1452 trillion KRW flowed in. On March 13, as much as 353.6 billion KRW was invested.

Although investments have concentrated more on overseas equity funds than domestic ones, the returns have been relatively poor. According to FnGuide, based on funds with assets under management of over 1 billion KRW, the average year-to-date return for domestic equity funds was 25.81%. This outperformed the average return of overseas equity funds, which was 19.73% during the same period. Even when narrowing the period, the return gap remained. Domestic equity funds recorded average returns of 25.83% and 12.54% over the past six months and one month, respectively. In contrast, overseas equity funds posted 19.64% and 3.40% for the same periods. Despite higher average returns from domestic equity funds, capital seems to be flowing into overseas equity funds. An industry insider explained, "Many of the capital inflows into overseas equity funds are for funds investing in Asian regions such as China," adding, "The reason is the higher expected returns compared to the recent domestic stock market."

The industry views this trend as a result of the intensified direct investment enthusiasm among individual investors that began after the historic market crash caused by the COVID-19 pandemic-induced economic slowdown. The recent series of private equity fund issues has also likely contributed to a decline in overall trust in the fund market. According to the Korea Financial Investment Association, investor deposits, which serve as market standby funds, were only 29.8599 trillion KRW on January 2 but began to increase sharply after the COVID-19-driven market crash in March. On March 24, the amount surpassed 40 trillion KRW for the first time this year, and on April 26, it reached an all-time high of 63.2349 trillion KRW. This represents a 111.8% increase since the beginning of the year.

However, some opinions suggest it is premature to jump to conclusions since fund capital flows tend to lag behind stock price movements. There is also a view that a significant amount of redemption waiting funds exist as investors seek to realize profits amid the recent sharp market rise. A representative from a major domestic asset management company said, "Capital outflows are not due to a poor market but may be because investors are redeeming to realize profits as the market rises," adding, "Since the fund market's response tends to lag behind the stock market, bargain hunting may come in the future."

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