As the stock market strengthens, household funds are moving from bank deposits to the stock market. In the first quarter of this year, funds exited savings accounts, while the scale of investments in stocks and investment funds nearly doubled. With the central bank signaling potential interest rate hikes, attention is turning to the future direction of household funds.
According to the Bank of Korea on July 15, the total deposits held by households and non-profit organizations at financial institutions in the first quarter amounted to 29.4 trillion won, a 42.01% decrease from 50.7 trillion won in the same period last year. In contrast, the scale of equity securities and investment funds increased from 30.4 trillion won to 61.4 trillion won, nearly doubling compared to the previous year.
The total deposits at financial institutions increased compared to the previous quarter (12.8 trillion won). Analysts suggest that much of this increase is due to the expansion of securities deposits.
This trend is also reflected in detailed financial transaction data. The scale of short-term savings deposits held by households and non-profit organizations decreased by 7.628 trillion won in the first quarter. Long-term savings deposits also fell by 12.192 trillion won. Conversely, the issuance of resident stocks and equity interests increased by 18.329 trillion won in the first quarter, indicating a shift of funds from savings to riskier assets like stocks.
Such fund movements appear to have continued into the second quarter. In April, the turnover rate of demand deposits was recorded at 23.1 times. This turnover rate was 23.6 times in December last year, reflecting heightened enthusiasm for stock investments, the highest level in a decade since December 2015 (24.6 times).
Additionally, the turnover rate for savings deposits, including time deposits and regular savings, was 1.7 times per month, matching the highest level recorded in December last year. This increase is attributed to the growing enthusiasm for stock investments, leading to active fund transfers from bank savings to investment opportunities like stocks.
The movement of household funds into stocks is largely attributed to the bullish stock market. The KOSPI index recorded a return of 19.71% in the first quarter. In contrast, the interest rate on one-year time deposits at commercial banks remained in the upper 2% range. As expectations for capital gains from rising stock prices grew, investors shifted their funds toward the stock market.
However, there are concerns that increased volatility in the domestic stock market since the second quarter and growing uncertainties surrounding the semiconductor industry may weaken investors' appetite for riskier assets. Additionally, the likelihood of the central bank raising interest rates could also impact household fund management. If the central bank raises the benchmark interest rate, market interest rates will likely rise first, leading banks to increase their deposit rates to attract funds.
Experts suggest that if the preference for riskier assets continues, the inflow of funds into the stock market may persist. Kim Yu-mi, a researcher at Kiwoom Securities, stated, "As households and businesses continue to accumulate financial assets, if the preference for riskier assets persists, the potential for idle funds to flow into the stock market could increase. The expansion of equity securities and investment funds confirmed in this fund circulation statistics signals that this movement of funds is already underway."
* This article has been translated by AI.
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