[Initial Insight] Open the Exit Route for Joorini

[Asia Economy Reporter Junho Hwang] "Do you happen to have any funds?"

This was the question asked to people I met over about ten days after taking charge of the capital market. Funds are a representative form of indirect investment. With a small amount of money, you can invest in desired targets, and by entrusting your money to experts, you can reduce risk. However, in these days when direct investment is the trend, I wondered if anyone still invests in funds. The answer was as expected. About one or two out of ten people could recall funds they had joined years ago.

There were various reasons why funds have settled into the back of people's minds. These included incomplete sales and the absence of appropriate funds. But at the center of all these reasons was ‘poor returns.’ With yields barely reaching the level of savings or time deposits, investors transformed into ‘ants (individual investors)’ who would rather create ‘10 million won electronically’ with their own hands or invest in Apple Car.

Recently, the stock market is overflowing with such people. The most concerning are the stock market beginners (called ‘Joorini,’ a combination of ‘stock’ and ‘child,’ meaning stock novices). The millennial generation in their 20s and 30s, who turned to the stock market because soaring housing prices made real estate investment out of the question. Despite their lack of understanding of the stock market, they boldly throw all-in (Yeongkkeul, meaning ‘pulling together all their soul’) funds into the stock market.

The somewhat fortunate thing is that they are focusing their investments on large-cap stocks. While these stocks are unlikely to be suddenly delisted, it does not mean the risks are eliminated. No matter how large the company, it is affected by the business environment. There are always good and bad news, and stock prices inevitably fluctuate. Especially recently, the volatility of large-cap stocks has been increasing. Securities firms are continuously releasing reports based on the premise that the fluctuations of large-cap stocks are growing. The possibility is increasing that the Joorini, who entered the market during a rising trend, will face a market they have never experienced before.

Recently, the Financial Services Commission revised the public fund system, which is meaningful in this regard. It secured an exit route for the Joorini. First, it allowed the creation of funds that set fees quarterly based on operational performance per fund unit. This means asset management companies can take fees proportional to the profits they generate. Also, fund distributors now receive sales commissions directly from investors, encouraging them to recommend funds prioritizing investors’ interests.

However, the core issue was not addressed. They did not tackle fund returns. Without profits, money will not accumulate. No matter what measures are taken, if returns remain at the level of savings or time deposits, it is better to comfortably visit a bank. The industry believes that relaxing the regulation limiting funds from investing more than 10% of assets in the same stock or introducing tax-exempt long-term funds would attract investors’ interest. These are systems the industry proposed to the government but were overlooked, likely because securing tax revenue is the government’s immediate priority.

If the stock market continues to follow an upward curve, there might be no need to create such a refuge for Joorini. However, we cannot ignore past cases where the stock market, which grew through liquidity, suddenly plunged due to tightening policies. At the end of last month, China implemented a sudden liquidity adjustment. The signal of tightening has already been given to the market. Warren Buffett, the ‘Oracle of Omaha,’ said, "Risk comes from not knowing what you are doing." You should prepare an umbrella before it rains.

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