The amount of floating money is continuing to increase due to the low interest rate to add to the volatility of the domestic financial market.
As of the end of April this year, the time deposits decreased by 7.167 trillion won (US$6.407 billion) from a year earlier to 566.149 trillion won (US$506.103 billion). During the same period, the demand deposits increased by approximately 22.64 trillion won (US$20.25 billion). The MMF balance reached 112 trillion won (US$100 billion) on June 12, while CMA increased to 48 trillion won (US$43 billion). The deposit in the stock market went up by 27.5 percent between the end of Feb. and June 12, from 16.7383 trillion won (US$14.9657 billion) to 21.3427 trillion won (US$19.0825 billion).
Some of the money is moving to the stock market. The daily average trading amount in the KOSPI and KOSDAQ increased about 40 percent to 10.5159 trillion won (US$9.4023 billion) between Feb. and this month. The amount was approximately six trillion won last year.
Experts are expressing concerns over the current situation, as the high level of liquidity fails to support the real economy. “The increase in short-term funds means investors are waiting for higher rates of return, and the money supply to the real economy is slowing down,” the Korea Institute of Finance explained, adding, “In this case, the likelihood of bubbles rises in the asset market, including the real estate sector.”
They also point out that an external impact can bring significant damage, as in the financial crisis of 2008 and the Vanguard scandal of two years ago, if money rushes into the stock market. Seven years ago, the Korean stock market lost more than 20 percent in just three days amid the global financial crisis. The loss snowballed, with the stock market having absorbed the floating fund in quantity ahead of the turmoil. In 2013, the Vanguard Fund changed its management rules to cause an outflow of about nine trillion won. At that time, it reduced the ratio of Korean stocks in the fund, causing a number of foreign investors to leave.