Corporate funds flow into short-term, low-risk MMF products

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South Korean companies are taking out funds from checking accounts and placing them into low-risk money market funds (MMFs), which indicates their skeptical outlook of the economy and economic conditions.

According to the Korea Financial Investment Association (KOFIA) on Wednesday, the outstanding balance of local MMFs stood at 189.6 trillion won ($144.1 billion) as of Monday, up by 22.3 trillion won from the end of June.

More than 90 percent of the MMF balance is sourced from corporate funds. While the MMF balance exceeded 150 trillion at the end of last year, they are now approaching almost 200 trillion won.

Analysts attribute the growing balance to looming economic uncertainty.

“Amid market uncertainty, institutions with heightened anxiety strategically place short-term funds in safe assets,” said Kum Jeong-seop, head of ETFs at KB Asset Management Co.

According to Bank of Korea data on Wednesday, checking account balances saw a drastic decline of 36.6 trillion won last month while MMF balance increased by 15.1 trillion over the same period.

Industry insiders note that the domestic market is showing a clear divergence as while some companies and individuals are reducing exposure to high-risk assets and opting for short maturities, others are heavily investing in certain booming stocks with credit loans, consequently facing significant volatility and counter-trading.

Data from local financial data trackers FnGuide and ETF Check show that about 1.41 trillion won has exited equity-type products in the domestic public fund market since the beginning of the year.

Outflows were also witnessed in the exchange-traded fund (ETF) market, focusing on secondary battery stocks.

The Kodex Kosdaq150 Leverage ETF, which tracks twice the daily return of the Kosdaq150 index, saw outflows totaling 985.4 billion won this year.

On the other hand, funds are flowing into products that include safe assets.

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So far this year, the public fund market has experienced net inflows of 8.22 trillion won in domestic and international bonds. Among the top 50 products with net inflows in the ETF market for the year, bond and high-yield savings account products accounted for 7.88 trillion won.

“A combination of the controversy surrounding the overvaluation of secondary batteries and the downgrade of the U.S. national credit rating has been seen as mixed signals in the stock market, resulting in institutional funds to flow into high-interest, safe assets,” said Kim Sung-hoon, head of ETFs at Hanwha Asset Management Co.

Amid concerns of market overheating, there is also a strong demand for interest-rate ETFs with returns based on high-yield interest and high liquidity. Interest-rate ETFs, akin to MMFs, offer elevated short-term yields and provide the flexibility to buy during market declines.

The TIGER CD Interest Rate Investment KIS Special Asset (Synthetic) ETF has attracted 1.68 trillion won this year. Similarly, the TIGER KOFR Rate Active ETF and the Kodex CD Rate Active ETF (Synthetic) also have seen inflows of 878.2 billion won and 802.1 billion won, respectively.

Companies continue to prioritize MMFs for their corporate funds, while the ongoing trend of short-term speculative investments among individual investors shows no signs of abating.

As of Monday, the balance of brokerage receivables stood at 581 billion won, surpassing the yearly average of 339.3 billion won.

An increase in forced sales was witnessed following volatility among secondary battery stocks, which have been driving the recent stock market frenzy. Following the historic peak of 773.4 billion won in these receivables as of July 28, forced sales reached 272.1 billion won during the first seven days of August, with 54.4 billion won being sold by force on Monday alone.

Short selling is also gaining momentum, likely driven by bets against rising prices due to an assessment of overvaluation of secondary battery stocks.

Short selling in the Kospi and Kosdaq markets in July amounted to 22.87 trillion won, a record high since Koscom, the system manager of the Korea Exchange, began compiling related data.