As the June 3 local elections conclude, the financial markets are refocusing on interest rates, stock prices, and real estate fundamentals. With market variables that were overshadowed by the political calendar now coming to the forefront, attention is turning to the direction of idle funds in the market.
According to Hana Financial Research Institute, funds flowing into asset management in the first quarter of this year reached 114.4 trillion won, significantly outpacing the 21.1 trillion won that entered bank deposits by a factor of 5.4. The net inflow of funds surrounding the stock market, including investor deposits and comprehensive asset management accounts (CMA), also totaled 31.8 trillion won, exceeding the net inflow into bank deposits. This surge in investment sentiment was driven by an unprecedented rise in the KOSPI index.
If this trend continues throughout the year, the gap between net inflows into asset management and bank deposits could reach 360 trillion won. Typically, during election periods, investors tend to adopt a wait-and-see approach, favoring safe assets like deposits. However, with the stock market consistently reaching new highs in the first half of the year, there is potential for the increased liquidity in the market post-election to be absorbed by the investment sector in the latter half of the year.
Experts believe that considering corporate earnings and fundamental strengths, a KOSPI index of 10,000 is achievable. Korea Investment & Securities raised its forecast for the KOSPI's upper limit in the second half of the year from 9,250 to 11,000, citing improved profit outlooks for semiconductor companies as a key factor.
The real estate market is also expected to be another destination for incoming funds in the second half of the year. Signs of recovery in transactions, particularly in certain areas of Seoul, suggest that idle funds may flow into the real estate sector. Observers note that investors looking to realize profits from the stock market or those with cash reserves may begin purchasing real estate.
However, the financial sector believes that the direction of fund flows in the second half will ultimately depend on interest rates. The Bank of Korea is expected to raise the benchmark interest rate at least twice in the latter half of the year, which could enhance the appeal of deposits. Rising interest rates may weaken investors' appetite for riskier assets and keep market funds tied to safer investments.
As interest rates rise, the repayment burden for those engaged in leveraged investments will increase, and their capacity for new borrowing will inevitably diminish. The fixed interest rates for five-year mortgage loans from the five major banks—KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup—have risen to between 4.34% and 7.32%, up from 4.26% to 7.10% at the end of last month. The market anticipates that loan rates could soon surpass 8%.
A financial sector official stated, "Typically, investor sentiment revives after elections, but in a rising interest rate environment, the pace of fund movement may be slower than expected. Ultimately, yields will determine the flow of liquidity."
* This article has been translated by AI.
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