Retail funds at MMFs hit 9-month high amid growing uncertainty

Yeouido, the financial district in Seoul. [Photo by Lee Chung-woo]

South Korea’s money market funds (MMF) have seen an influx of retail funds, as the financial market is expected to face a prospect for higher interest rates amid increased uncertainty.

MMFs refer to short-term financial products, such as certificates of deposits (CDs), commercial papers (CPs), and bonds with a maturity of less then one year. MMFs are deemed standby funds because they seek short-term profit and are available for resale.

According to the Korea Financial Investment Association (KOFIA) on Tuesday, the total value of retail MMFs established as of August 18 reached 15.06 trillion won ($11.2 billion). The figure marks the highest amount in nine months, since the same amount on November 28 last year.

Retail MMFs had remained steady at around 13.6 trillion won until April, when they increased to around 14 trillion won. As of August 9, MMFs surpassed 15 trillion won.

While facing rising volatility, the global financial market has been filled with uncertain risks, including the recent downgrade of the U.S. credit ratings, surging yields on the U.S. Treasuries, and China’s real-estate turmoil. Korea has also seen its financial sector more vulnerable to uncertainty as meme stocks have led to market fluctuations.

As the challages have made it harder for retail investors to find proper investment destinations, more investors deposit their funds into MMFs to search for potential opportunities.

The factor driving investors to MMFs involves upward pressures on the U.S. Fed’s reference rate amid growing signs of further tightening of monetary policy.

Investments in longer-term bonds can make investors vulnerable to losses in case of a hike in interest rates.

In the U.S., assets in MMFs are consistently reaching new record levels each day, driven by funds shifting away from banks in order to capitalize on the favorable high interest rates.

“A limited range of investment options and rising uncertainty surrounding asset management have lifted the popularity of short-term securities in Korea,” said Yoon Yeo-sam, head of asset distribution team at Meritz Securities Co.