Stock and Bond Markets Heated Up by Surging Funds

KOSDAQ Recovers to 1000-Level After 20 Years
Retail Investor Funds Expected to Reach 130 Trillion Won This Year

[Asia Economy Reporters Song Hwajeong and Lee Minji] The KOSDAQ has recovered to the 1000 level for the first time in 20 years. The KOSPI also surpassed the 3200 mark for the first time based on closing prices, continuing the stock market's unstoppable upward momentum. Although concerns have arisen due to the steep rise, continuous inflows of funds through individual investors are pushing the market higher. Not only the stock market but also the bond market is seeing a significant increase in demand as money flows into the market.

According to the Korea Exchange on the 26th, individual investors have net purchased 15.6211 trillion KRW in the domestic stock market so far this year. They bought 13.4465 trillion KRW in the KOSPI and 2.1602 trillion KRW in the KOSDAQ, driving the KOSPI to the 3200 level and the KOSDAQ to the 1000 level. During the same period, foreigners net purchased only 335 billion KRW, while institutions sold off 15.7506 trillion KRW. The strong market was led by individual investors absorbing the selling pressure from institutions.

Investor deposits, which are funds waiting to be invested in the stock market, have also surged sharply this year. Investor deposits increased from 65.5227 trillion KRW at the end of last year to a record high of 74.4559 trillion KRW as of the 12th of this month.

There is a forecast that individual investors' waiting funds for the stock market could increase to 130 trillion KRW this year. Kim Dami, a researcher at Shinhan Financial Investment, said, "The abundant liquidity environment and individual waiting funds are expected to firmly support the stock market," adding, "Assuming the growth rate of individual liquidity (M2) is at the average level of interest rate cuts and the ratio of waiting funds to liquidity remains at the current level (7%), the stock market waiting funds could expand to the 130 trillion KRW range by the end of this year."

Considering the situation from 2007 to 2009, when the KOSPI surpassed the 2000 level for the first time in history, individual purchasing power could exceed 200 trillion KRW. Kim Younghwan, a researcher at NH Investment & Securities, said, "During 2007 to 2009, when the KOSPI first crossed 2000 and the public fund craze was underway, the inflow of individual funds into the stock market was very strong," adding, "In 2007, Korean households used 80% of their net savings to buy stocks, and if the same applies this year, individual net purchases could increase to 157 trillion KRW, and if household savings rates rise, it could increase to 204 trillion KRW."

Liquidity effects are expected to continue due to economic stimulus measures in various countries. An Soeun, a researcher at IBK Investment & Securities, said, "Individual funds are based on an expansive liquidity environment," adding, "Despite the financial authorities' credit control moves due to concerns about financial imbalances, considering the already large scale of stock market waiting funds, the liquidity effect will continue."

As large-scale funds flow into the stock market amid low interest rates, the domestic stock market continues its record-high rally, and money is also pouring into the bond market, heating up the issuance market.

According to the investment banking (IB) industry, competition to purchase bonds has surged this month. The monthly demand forecast oversubscription rate, which usually stays around 300-400%, rose to 630% this month. January is typically the month when institutions start executing funds and companies actively raise capital. This is the period when the 'early-year effect' appears, with a strong issuance market due to abundant liquidity, but this year this trend is particularly pronounced. Demand from institutional investors aiming to increase interest income (carry) through bond holdings has risen, while the number of companies (issuers) accumulating cash due to lower interest rates has increased.

Hotel Lotte, which conducted a demand forecast last week, increased its issuance limit from 150 billion KRW to 300 billion KRW. Despite negative business outlooks for hotels, 930 billion KRW flowed in for the 150 billion KRW issuance (100 billion KRW for 3-year bonds, 50 billion KRW for 5-year bonds). The effective competition rates were 6.6 times and 5.4 times, respectively. Hyundai Oilbank, which issued green bonds for the first time, also succeeded in attracting 1.3 trillion KRW for a 200 billion KRW issuance, raising the issuance limit to 400 billion KRW.

The expected issuance volume this month is projected to reach 3.9 trillion KRW. The market expects the issuance scale to increase further if companies raise the amount due to successful demand forecasts. Kim Gimyeong, a researcher at Korea Investment & Securities, said, "Compared to April last year, when companies had to issue corporate bonds with the support of the Bond Market Stabilization Fund (Bond Stabilization Fund), the bond market is now stronger," adding, "The improvement in corporate performance and the possibility of fewer corporate rating downgrades in the COVID-19 stabilization phase reduce credit investment risks."

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