Fixed deposits up 42.3 trillion won in a month — triple June's gain

MMFs rise 27.2 trillion won, 4 trillion more than a year earlier

Bond funds flip from 4.8 trillion won outflow to 700 billion won inflow

Equity funds shed 56.2 trillion won as share prices tumble

A deposit rate notice hangs outside a financial institution in Seoul. [Herald DB]
A deposit rate notice hangs outside a financial institution in Seoul. [Herald DB]

As the Kospi plunged more than 20% in July amid unprecedented volatility, investors poured money into safety-oriented financial products. While equity fund balances shrank by more than 56 trillion won ($39.6 billion) on falling share prices, bank fixed deposits absorbed more than 42 trillion won in fresh inflows. Money market funds (MMFs) — a key short-term parking vehicle — also drew 27 trillion won, highlighting a broad move to shelter capital from stock market uncertainty.

According to the Bank of Korea's "July Financial Market Trends" report released Friday, bank fixed deposits rose 42.3 trillion won last month — roughly triple the 14.2 trillion won increase recorded in June. The Bank of Korea said the surge reflected banks' active efforts to attract deposits for lending and regulatory ratio management, compounded by an influx of surplus funds from some large conglomerates.

Demand deposits — which allow free withdrawals at any time and serve as a short-term holding vehicle — swung from a 12.2 trillion won increase in June to an 80.8 trillion won decrease in July, driven by seasonal factors. Corporate funds temporarily parked at quarter-end for financial ratio management typically flow back out in July, and the effect was amplified this year by corporate value-added tax payments falling in the same period.

Among asset management firms, large sums also shifted into stable short-term instruments. MMFs reversed a 29.3 trillion won outflow in June to post a 27.2 trillion won inflow in July — about 4 trillion won more than the 23.3 trillion won increase recorded in the same month a year earlier. Bond funds similarly turned around, swinging from a 4.8 trillion won decrease in June to a 700 billion won increase in July.

The moves reflect demand to park funds temporarily in short-term instruments or shift into relatively stable bonds to ride out stock market volatility. The Kospi, which closed June at around 8,476, fell to around 6,595 by the end of July — a drop of more than 22.2 percent, or 1,881 points, in a single month. The Kosdaq also retreated sharply over the same period, sliding from around 916 to around 720.

The Bank of Korea attributed the sharp correction to "high volatility driven by concerns over AI-related industries, uncertainty surrounding developments in the Middle East, and continued net selling by foreign investors."

Against that backdrop, equity funds posted a steep decline, swinging from a 3.5 trillion won increase in June to a 56.2 trillion won decrease in July. The figures are based on net asset value (NAV) and reflect the drop in valuations caused by falling share prices. Other funds also reversed course over the same period, turning from a 15.5 trillion won increase to a 13.8 trillion won decrease.

However, bargain-hunting demand persisted even amid the market correction. Excluding valuation changes, net new money flowing into equity funds reached 11.4 trillion won in July, while derivative funds attracted 8.4 trillion won. Meanwhile, overall financial institution deposits contracted, with bank deposits falling 30 trillion won and asset management firm deposits declining 42.8 trillion won for the month.


forest@heraldcorp.com