hankyoreh

“It’s really dicey. Everyone’s been keeping their eyes peeled for signs.”

This is how Jeong Sang-jin, director of the Gangnam Star PB team for KB Kookmin Bank’s Star advisory group, described the recent investment climate to the Hankyoreh on Wednesday.

“Investors are losing money on existing investments, so they’re very cautious about purchasing additional assets,” he explained.

“We’re also seeing people keeping their funds in short-term deposits and savings products,” he noted.

Is this the end of the asset investment boom that had South Korea buzzing for the past two years? Signs of change are palpable in the air, with a sharp contrast from the previously aggressive investment environment that saw people going into debt in order to invest.

The ultra-low interest rates that had been shoring up assets such as real estate, stocks and virtual currency have vanished. In their place is an evident “wait-and-see” climate where people are shying away from additional loans and investments and looking to acquire cashable assets as much as possible. In other words, investor patterns have been changing with the shift in money flows.

Some have been calling this phenomenon a “reverse money-move” — meaning that market funds are being shifted from risky assets to safer ones. Many people who arrived late to the investment wave have been left struggling with losses.

Deep investment chill

Already creeping downward since the latter half of 2021, the KOSPI index saw a 11% dive over the last month. On occasion, it has even dipped below the 2,600-point mark during trading.

The real estate market, which had previously been pushing ever upward, has also undergone a major shift this year.

The increase in the price of Seoul apartments had already been tailing off since last year; as of Jan. 24, the average weekly price was down by 0.01% from the week before. The drop in the average price was the first in the 20 months since May 25, 2020.

This turnaround in the asset market comes as central banks in the US and other major economies tighten the austerity reins amid steeper-than-expected inflation and fears of a bubble in asset prices.

As the asset market roils, investors have become gun shy. Private bankers at major financial companies agreed that the current climate has investors who were once aggressive about asset purchases now hunkering down and waiting to see how things unfold.

They also noted a major drop in inquiries about additional loans to increase rates of return, along with a clear trend of increasing the amount of savings and deposit investment packages offering fixed returns.

“People are reluctant to invest right now,” said Moon Eun-jin, a private banking director for KEB Hana Bank’s Hannam Club1.

“It’s a conservative atmosphere, where people are trying to get their hands on cash instead of risky investments,” she added.

Quite a few investors are getting anxious. One of them is a 42-year-old company employee surnamed Han, who got on the bandwagon relatively late amid the rise in asset prices.

Early last year, Han scraped together savings and took out a 300 million won loan (roughly US$250,000), investing 50 million won in stocks and purchasing a small apartment costing 600 million won.

“As recently as the first half of last year, I believed that my strategy of taking out debt to invest had paid off, as stock and housing prices kept rising, but since the end of the year I’ve been losing money,” Han said.

“With interest rates on loans shooting up on top of that, it’s getting to the point where I’m having trouble making ends meet,” they added.

“If it gets to be too much, I’ll have to sell off the stocks and house. But my losses are already at such a point that there’s nothing I can really do. I don’t know how long I can hold on for.”

Statistics bear out changes

The new climate is also evident in the numbers. Korea Financial Investment Association figures show a veritable receding tide of shrinking margin loan balances.

Since reaching a peak of 26 trillion won (around US$21 billion) on Sept. 9 of last year, that number has been dropping steadily. As of Jan. 27, it stood at 22 trillion won — a decline of 15.4% in four months.

Meanwhile, the balance for money market funds (MMFs), which are classed as a relatively stable financial product, has risen by about 18 trillion won (14%) over the past month. Analysts said that investors are shifting their funds over to standing products, while reducing their use of loans to acquire additional investment funds.

Another clear trend is the migration of open market funds to banking deposit and savings accounts. According to January receipt figures shared Thursday for five major banks — KB, Woori, Shinhan, Hana, and NH — the savings and deposit account balance had risen from 690.0366 trillion won in late December to 701.3261 trillion won as of late January. It’s a fairly steep rise of 11.2895 trillion won, or 1.6%.

Part of that can be attributed to banks raising their savings and deposit interest rates to reflect the rise in open market interest, along with stronger sales marketing and deposits of bonuses and other lump sums. But it could also be seen as signaling a stronger investor preference for safe assets.

Experts said the trend has been gradually growing ever since the Bank of Korea (BOK) raised its key interest rate last August. During the month of November 2021 — the most recent one for which BOK figures were available — deposits rose by 14 trillion won in the space of a month for savings and deposit products with a term of under two years, which are more difficult to securitize than demand deposits.

By Jun Seul-gi, staff reporter

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