[Practical Finance] Money Pours Only into US and China Funds

US Tapering Imminent
Concerns Grow Over China’s Regulation and Power Shortages...

North American Investment Fund Inflows Continue
Faster Economic Recovery Outpacing Emerging Markets Post-COVID
Significant Corporate Earnings Improvement...S&P 500 Up 18.8% Since Year Start
Related Fund Returns Exceed Overseas Equity Average by Twice

China Investment Fund Inflows Persist
Investors Buying Low Amid Sharp Index Declines Since Year Start
However, Risks Remain from Power Shortages and Evergrande-Induced Market Drops

[Asia Economy Reporter Minji Lee] While capital outflows continue from domestic equity funds and emerging market funds, capital inflows are ongoing mainly in the North American and Chinese regions.

According to financial information company FnGuide on the 13th, as of the 11th, domestic equity funds saw an outflow of 2.0419 trillion KRW over the past year. Over the past two years, capital outflows reached 14.3564 trillion KRW. On the other hand, funds investing in overseas equity funds have steadily flowed in, with 7.0139 trillion KRW since the beginning of the year, 8.69659 trillion KRW over one year, and 8.2705 trillion KRW over two years.

The regions with notable capital inflows among overseas equity funds were North America and China. Among 65 overseas equity funds investing in the North American region, 3.2611 trillion KRW flowed in since the beginning of the year, and 3.7337 trillion KRW over one year. Among 185 China equity funds established domestically, 1.9563 trillion KRW flowed in since the beginning of the year, and 1.9977 trillion KRW over one year. This contrasts with net outflows seen in emerging markets such as Vietnam, India, Brazil, Russia, and Japan since the beginning of the year.

The prominent capital inflow into funds investing in North America is analyzed to be largely due to the region's relatively faster recovery from the COVID-19 phase and accelerated economic recovery compared to emerging markets. Despite recent political uncertainties such as the US debt ceiling negotiations and growing concerns over prolonged inflation, investors appear to have chosen the US as a safe investment destination compared to other emerging countries. With significant improvements in corporate earnings, the US major index S&P 500 rose 18.8% since the beginning of the year and 23.4% over the past year. Accordingly, related fund returns recorded 18.5% and 29.8%, respectively, significantly outperforming the average return of all overseas equity funds (7.9%, 20.85%).

Looking at individual funds, among funds investing in the North American region this year, the Korea Investment US Dividend Aristocrats Fund (179.1 billion KRW), AB US Growth Fund (146.3 billion KRW), AB Select US Fund (80.3 billion KRW), and Fidelity US Fund (55 billion KRW) showed strong capital inflows. The Korea Investment US Dividend Aristocrats Fund includes holdings such as Nucor (1.73%), a steel product manufacturer; Target (1.67%), a retail company; Expeditors International (1.62%), a logistics company; and ExxonMobil (1.60%), an oil company. Based on returns, the top funds were Korea Investment KINDEX US Wide Moat Value ETF (31.46%), Korea Investment KINDEX US S&P 500 ETF (29.28%), Mirae Asset TIGER US S&P 500 ETF (29.03%), Korea Investment KINDEX US Nasdaq 100 ETF (26.33%), Mirae Asset TIGER Nasdaq 100 ETF (26.25%), and Samsung US Index (26.20%).

In the case of China funds, despite expectations of further index declines due to regulations on big tech, real estate, and gaming companies, as well as supply chain disruptions caused by power shortages, investors are presumed to have engaged in bargain buying due to the government's fiscal stimulus intentions and the significantly lower index compared to the beginning of the year. Among individual funds, Meritz China Fund attracted the largest capital inflow of 111.6 billion KRW since the beginning of the year. Following were KB Tong China 4th Industrial Fund (102.7 billion KRW), Mirae Asset China Growth Fund (91.5 billion KRW), and Mirae Asset China STAR Market Fund (40.7 billion KRW). The most sought-after Meritz China Fund invests not only in mainland China but also in Greater China companies listed in Hong Kong, the US, and Europe, with holdings including camera specialist iRay Technology (11.12%), China Soft (6.74%), robot vacuum maker Ecovacs Robotics (5.33%), Sunway Microelectronics (4.83%), Sanhuan Group (4.75%), and China Merchants Bank (4.26%).

Based on returns, the overall China fund return was -2.01% since the beginning of the year and 10.14% over one year. Among individual funds, the highest returns were Mirae Asset TIGER China Electric Vehicle SOLACTIVE ETF (58%), Meritz China Fund (26.5%), Hanwha ARIRANG Shenzhen ChiNext ETF (25.7%), Samsung KODEX China Shenzhen ChiNext ETF (25%), and Samsung China Mainland Small & Mid Cap FOCUS Fund (24.8%).

In the securities industry, regarding investment in the North American market, it is expected that a clear upward trend will not be seen for the time being as policy leeway begins to weaken and concerns over corporate peak-out and inflation become prominent. Since tapering is expected to begin next month, it will be necessary to monitor the stock market's directional movements. Researcher Chanhee Kim of Shinhan Financial Investment said, "Although recent employment indicators showed weakness for two consecutive months, it is highly likely that monetary policy normalization will proceed as expected," adding, "Uncertainty is expected to gradually ease due to the US government's temporary debt ceiling increase agreement."

He also advised a cautious stance on the Chinese market. Given that the second half of the year faces a triple hardship of Evergrande Group's default crisis, production contraction due to power shortages, inflation concerns, and COVID-19 spread, risk management is deemed necessary.

Researcher Jonggyu Jeon of Samsung Securities said, "A conservative response strategy is needed until the inflection point of Chinese government policy is confirmed," adding, "The key is the timeliness and intensity of the policy. Evergrande's default has already begun, and with the heating season in November approaching, the Chinese government's stance prioritizes self-help measures, so the Evergrande shock is likely to be reflected again in the stock market." He further advised, "In the short term, a correction in cyclicals and materials is inevitable due to excessive raw material price increases, but for stocks with solid earnings and beneficiaries of the common prosperity policy such as the eco-friendly value chain, localization, and new infrastructure-related stocks, a mid- to long-term approach is recommended."

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