As KOSPI has been setting a record high day after day since the new year began, Korea's public equity fund market is also showing a clear trend of inflows.
According to the Korea Financial Investment Association on the 8th, the assets under management of domestic public equity funds totaled 100.3122 trillion won as of the 5th. This is nearly double the roughly 57 trillion won at the end of May last year, achieved in seven months.
Although equity fund flows slowed after November last year amid debate over overvaluation of artificial intelligence (AI) tech stocks, investor sentiment revived as year-end "Santa rally" expectations returned. In particular, with semiconductor bellwethers leading the rally since the new year began, public fund assets have regained momentum.
KOSPI broke above the 4,300 level on the first trading day of the new year (Jan. 2) and, for the first time, topped the 4,600 level intraday the previous day, resetting a record high in 100-point increments for four consecutive trading days.
This uptrend, tied to the strength of U.S. stocks, a recovery in exports, and expectations for semiconductor earnings, is also having a positive impact on domestic equity funds.
By contrast, the domestic public bond fund market is contracting. As of the 5th, assets in bond funds stood at 86.7183 trillion won, declining since September last year, when they topped 100 trillion won. Year-end seasonality, expectations of a prolonged freeze in the Bank of Korea's policy rate, and a sharp rise in bond yields have all played a role.
Based on the three-year Treasury, the yield, which was in the 2.5%–2.6% range in October last year, broke above 3.1% on Dec. 11, setting a record high for the year. It has since fallen into the 2.9% range on market-stabilization measures by authorities, but remains higher than before.
Investors' preference for risk assets is also cited as a factor spurring outflows from bonds. However, some say bond yields could stabilize lower going forward.
Lim Jae-gyun, a KB Securities analyst, said, "Expectations for rate cuts are very low, but yields are likely to fall given they had risen excessively as year-end stop-loss selling hit the market," adding, "What's more, the deployment of retirement pension funds, the resumption of trading at the start of the year, and inflows tied to the World Government Bond Index (WGBI) from April will also be positive for the bond market."