"October Default Option Product Launch... Minimum 2 Trillion to Maximum 25 Trillion Inflow into Stock Market by 2024"

On the 14th, when the US stock market plummeted due to inflation fears, the won-dollar exchange rate and KOSPI were displayed in the dealing room of Hana Bank in Euljiro, Seoul. On that day, the exchange rate surpassed 1,390 won for the first time in 13 years and 5 months. Photo by Moon Honam munonam@

[Asia Economy Reporter Yoonju Hwang] Shinhan Financial Investment expects that the default option product, launching in October, will induce long-term capital inflow into the stock market.

Yuna Choi, a researcher at Shinhan Financial Investment, stated on the 14th, "The estimated additional inflow into domestic stocks by 2024 is 2.8 trillion KRW."

This is the minimum inflow amount assuming all weightings remain the same and only the market size grows by 2024. As of 2021, the proportion of Defined Contribution (DC) and Individual Retirement Pension (IRP) was 42%, with 14% of that invested in stocks. The amount assumed to have flowed into domestic stocks is about 4% of the total DC and IRP.

Considering the stock proportion in 2021, Researcher Choi estimated three possible channels for retirement pension funds to flow into the domestic stock market in the future.

The most conservative scenario assumes that the stock proportion follows the average annual growth rate since 2015. During this period, the stock proportion in DC and IRP showed a growth rate of 39% per year.

Choi said, "Applying this, the stock proportion will expand to 23% by 2024," and estimated, "The inflow into the stock market will be 44.8 trillion KRW, of which 13.5 trillion KRW will flow into domestic stocks." He also predicted, "Including DB stock-type funds, the additional possible inflow into domestic stocks compared to 2021 is 16 trillion KRW."

The base scenario assumes the stock proportion expands to 30%. Choi analyzed, "The amount that can flow into the stock market from DC and IRP is 57.3 trillion KRW, of which 30%, or 17.2 trillion KRW, will flow into domestic stocks."

He explained, "If the DB stock-type proportion remains the same, adding the 7.6 trillion KRW expected to flow into stocks from DB, the additional possible inflow into domestic stocks compared to 2021 is 19.7 trillion KRW."

The most optimistic scenario assumes the stock proportion expands to 40%, based on the sharp growth in DC and IRP stock-type proportions since 2019.

Choi diagnosed, "In this case, the inflow into the stock market will be 76.4 trillion KRW, of which 22.9 trillion KRW will flow into domestic stocks, accounting for 12% of the total DC and IRP market."

He evaluated, "Considering that countries that proactively introduced default options have an average stock proportion of 44%, with an average domestic stock proportion of 22%, this scenario is not impossible."

He further predicted, "Adding the DB stock-type amount, the estimated new inflow into domestic stocks in South Korea in 2024 will be 25.4 trillion KRW."

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