Changed Household Fund Management, Cash and Deposits Soar to 70% Range... Stocks Plummet to 5%

[Asia Economy Reporter Song Hwajeong] As the financial environment changes due to rising interest rates and a weak stock market, the proportion of cash and deposits in household fund management has significantly increased.

According to Hana Financial Research Institute on the 11th, the proportion of cash and deposits in household fund management rose sharply from 49.7% in 2020 to Q3 2021 to 71.4% in Q4 2021 to Q1 2022. Meanwhile, stocks and funds decreased significantly from 30.1% to 5.3% during the same period. The proportion of insurance and pensions expanded from 20.3% to 23.4%.

Researcher Kim Wanjung explained, "After the COVID-19 crisis, funds that left insurance, pensions, and indirect investment products flowed into direct stock investments, stock market peripheral funds, and virtual assets, showing a clear negative correlation between household savings deposits inflow and net stock purchases." He added, "However, from Q4 last year, due to the Bank of Korea's base rate hikes, strengthened loan regulations, and stock price adjustments, individual stock management decreased significantly, and the rise in deposit interest rates greatly expanded the proportion of cash and deposits."

This trend was clearly observed in Q1 this year as well. According to the Bank of Korea's provisional flow of funds statistics, the size of households' domestic equity securities and investment funds was 9.5 trillion KRW in Q1, increasing from the previous quarter (-1.2 trillion KRW), but it shrank significantly compared to 42.3 trillion KRW in Q1 last year. The acquisition amount of domestic and foreign stocks by households in Q1 was 16 trillion KRW, about one-third of 52.2 trillion KRW in Q1 last year. In contrast, household savings deposits and money trusts increased by 42.3 trillion KRW and 6.4 trillion KRW respectively in Q1, showing a larger increase than 15 trillion KRW and 1.3 trillion KRW in Q1 last year.

Regarding deposits, the tendency toward longer terms rather than short-term is becoming clear. According to Hana Financial Research Institute, fixed deposits under 6 months increased by 36.1 trillion KRW in the second half of last year but decreased by 0.1 trillion KRW from January to April this year. On the other hand, fixed deposits between 6 months and less than 2 years increased by 1.6 trillion KRW in the second half of last year and rose sharply by 18.9 trillion KRW from January to April this year. Researcher Kim said, "With the interest rate hike trend expanding fund inflows into fixed deposits, in the second half of last year when the base rate hikes began, fund management behavior focused on short maturities was highlighted, greatly expanding inflows into short-term deposits under one year. However, this year, inflows have increased mainly in fixed deposits between 6 months and 2 years." He added, "In the second half, not only will funds return to deposits, but preference for fixed deposits with high interest rate merits will also increase."

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