The market is experiencing an unprecedented surge in inflows into cash assets. Since the beginning of the year, about 48 trillion won has flowed into cash management accounts (CMAs), money market funds (MMFs), and investor deposits. The total amount of idle funds has already reached nearly 350 trillion won. With no clear stronghold in the stock market and no other obvious place to invest, funds are concentrated in short-term storage options due to a lack of alternatives.
According to the Korea Financial Investment Association on May 15th, as of May 7th, the total holdings of CMAs, MMFs, and investor deposit accounts were 349.88 trillion won, an increase of nearly 48 trillion won this year alone, making it the highest total amount. reached. It’s the best time. Although it decreased slightly to 344.51 trillion won on May 13, it is still close to 350 trillion won. CMAs, MMFs, and investor savings accounts act as capital around the stock market, providing stock investors with short-term cash storage options that can be withdrawn and liquidated at any time.
The increase in short-term funds is likely due to institutions and individuals withdrawing from the stock market. From the beginning of the year to May 14, institutions and individuals sold a total of 20 trillion won in the domestic stock market. Market participants point out that an increasing number of investors are taking a wait-and-see attitude due to factors such as falling stock prices. Uncertainty surrounding the momentum of value-enhancing policies and the abolition of financial investment income tax. In particular, experts say this was due to disappointment with the value increase policy outlined on May 2nd.
This policy includes recommendations for listed companies to regularly formulate and voluntarily disclose plans to improve corporate value. The government is considering tax incentives to encourage companies to participate voluntarily. There are speculations that the “Tax Law Amendment Bill” to be submitted by the Ministry of Economy and Finance in July will include provisions to reduce corporate taxes and dividend income taxes for companies that increase dividends. However, all of these tax law changes are legislative matters. Opposition parties oppose these amendments. Some analysis suggests that the effects of value-up policies may not be that great.
Criticism has been raised over the uncertainty surrounding the abolition of the financial investment income tax, which is also contributing to investors withdrawing their funds. Financial investment income tax is levied on investors who earn more than 50 million won annually from domestic stocks and publicly offered funds, and a 20 to 25 percent tax rate is levied on capital gains. The financial investment income tax was originally scheduled to come into force in 2023, but was postponed until January 2025. President Yun Seok-yue declared the abolition of financial investment income tax earlier this year. However, South Korea’s ruling party, the Democratic Party of Korea, which won an overwhelming victory in the recent general election, insists that a financial investment income tax should be introduced next year, as agreed by the ruling and opposition parties.
The Korea Corporate Governance Forum recently predicted in a commentary, “If a financial investment income tax is introduced, 150 trillion won will flow out of the domestic stock market.”
Additionally, unlike the semiconductor and artificial intelligence-related stocks that have driven the bull market in the United States and Japan, there is no prominent major stock in South Korea, which is prompting investors to consolidate their funds. Furthermore, there are speculations that the US Federal Reserve and the Bank of Korea will cut interest rates later than originally expected, leading to a slump in stock investment.
