About a month after the start of the "KOSPI 5000" era, the KOSPI index is now on the verge of 6,000 points. On the 12th, the KOSPI index closed above 5,500 points and then broke through 5,600, 5,800, and 5,900 points over the next four trading days.
Attention is focused on whether the market is overheating. It is time to assess whether the recent surge in the KOSPI index should be seen entirely as a "revaluation" of the Korean stock market, or as a short-term overheating. Heo Jae-hwan, a researcher at Eugene Investment & Securities, said if the speed of fund inflows into the stock market significantly outpaces the speed of share-price gains, it should be viewed as a sign of overheating.
First, it is assessed that the movement of funds in the market that began last year has accelerated since the start of the year. So far this year, bank deposits have decreased by 34 trillion won, while funds into equity funds have increased by 46.7 trillion won. Customer deposits at securities firms increased by 10 trillion won. This means household funds have flowed into the stock market in large amounts.
Heo said, "More than half of the equity-oriented funds that flowed in over the past year came in within less than two months, and money market funds (MMFs) also increased by more than the total inflow for last year," adding, "MoneyMove has accelerated since the start of this year."
In particular, the speed of fund inflows into domestic equity funds has surpassed the speed of fund inflows into overseas equity funds. However, Heo analyzed that although the pace of inflows is fast, it is similar to the speed of share-price gains.
Then can the current trend of large-scale movement of household funds into stocks be read as a sign of market overheating? Heo analyzed that compared to the "fund craze" of 2006–2008 and the "Donghak Ant Movement" that took place after the COVID-19 outbreak in 2020–2021, the current level of fund inflows into the stock market is not excessive.
He explained, "The share of equities in domestic fund assets has only now recovered to the levels of 2018–2019."
Then when can investment sentiment be considered excessive? Advice is to be cautious when the speed of fund inflows is steeper than share prices.
Heo said, "There was a time when the rate of increase in customer deposits was steeper than the pace of share-price gains, and that was in 2021," adding, "It is natural for funds to flow in when share prices rise, but if the speed at which liquidity comes in becomes steeper, caution is needed." If funds flow into the stock market faster than share prices are rising, it can be seen as investors being extremely excited.
He added that recently the speed of inflows into domestic equity funds has begun to outpace the rise in the KOSPI index. That suggests signs of overheating. However, he said the divergence between the pace of inflows and the KOSPI is not yet large.