In South Korea, cash is king on US election, Samsung uncertainties

South Korean investors are hoarding cash as Samsung Electronics Co., the world’s top memory chipmaker, hurts local stocks and uncertainties over the US presidential election place pressure on Wall Street assets.

The balance of term deposits at Korea’s five largest banks rose 11.5 trillion won ($8.4 billion) in October from the month earlier, while money market funds, which focus on low-risk, short-term debt instruments, saw inflows of some 20 trillion won during the period, according to industry sources in Seoul.

“High-net-worth individuals are tending to hoard cash for now because it is hard to invest even in commodities such as gold, which has reached record highs," said a branch manager at a local brokerage in Seoul's affluent Gangnam district.

Wealthy retail investors in Korea dumped domestic and foreign stocks amid deepening uncertainties over the US election and Korea’s controversial financial investment income tax, which was expected to take effect next year. Korea’s main opposition party said on Monday it decided to support the government’s move to scrap a plan to impose the tax on retail investors.

Domestic investors with account balances of over 3 billion won at three major Korean securities firms sold a net 203.9 billion won in domestic stocks and a net 705.4 billion won in overseas shares over the past three months, a Korea Economic Daily analysis on Sunday found.

WORST- PERFORMING LOCAL STOCKS

Sluggish local stocks drove investors away from the market. Among 14 major stock markets worldwide, Korea's tech-heavy Kosdaq was the worst performer with a 14.3% loss, followed by the benchmark Kospi with a 3.7% drop in the first 10 months of 2024.

The Kosdaq's daily trading value averaged 6.1 trillion won last month, its lowest since November 2022, while the Kospi's fell to a nine-month low of 9.7 trillion won. Investors' deposits fell below 50 trillion won in October for the first time this year.

The stock market turnover ratio in September slipped to 19.6%, its lowest since September 2018.

This comes as Samsung, the country’s most valuable company, skidded on the back of weak profits, dragging the overall domestic stock market with it.

Retail investors chased the stock on dips, however, buying a combined net 12.4 trillion won in September and October — more than individual investors’ total net purchases of 11.1 trillion won on the Kospi during that period.

Investors bought Samsung shares for an average of 65,850 won each over the past three months, suffering a loss of 11.5% based on its closing on Nov. 1.

US STOCKS, BONDS, NOT ALTERNATIVES

US stocks and bonds were not a favored investment among Koreans.

Local investors dumped a net $1.2 billion in US shares in September and October as they were seen to have peaked amid the tightly fought US election, which pushed up US Treasury yields despite the Federal Reserve’s interest rate cut.

Local retail investors bought a net 2.9 trillion won in bonds on the over-the-counter market in October, marking the first month this year that such purchases did not exceed 3 trillion won.

Last month, the Bank of Korea delivered its first interest rate cut in more than four years, lowering its benchmark interest rate by 25 basis points (bps) to 3.25%.

Despite the move, the highly liquid Korean government's three-year bond yield rose to 2.939% on Nov. 1 from 2.78% on Oct. 2, while the five-year yield advanced to 2.995% from 2.843% during the period, according to the Korea Financial Investment Association.

Write to Sung-Mi Shim, Tae-Ung Bae and Bo-Hyung Kim at smshim@hankyung.com
 
Jongwoo Cheon edited this article.