No Matter What, Banks, Brokerages Always Win
Small Investors Holding Bags for Poor Performance in Equity Funds
By Park Hyong-ki
Staff Reporter
Retail investors are upset by mounting losses from equity funds on a relentless bearish run on the stock market.
Banks and securities companies seem to be the only ones enjoying high gains from increasing fund sales and marketing.
According to the Financial Supervisory Service, banks and brokerages earned combined commission fees of over 1.2 trillion won from fund sales in the first half of the year.
Of lenders, Kookmin Bank reaped the highest commission of 200 billion won, followed by Shinhan and Woori. Meanwhile amongst non-banking entities, Mirae Asset Securities gained the most at 110 billion won, followed by Korea Investment & Securities and Samsung Securities.
On the contrary, equity funds have suffered steep losses since November last year as the stock market has spiraled downward on the global credit crisis.
Some 2,362 domestic and overseas products lost some 38.4 trillion won between Nov. 7 last year and Aug. 13, said the Korea Fund Ratings, a fund evaluating body.
Given that most mutual funds are marketed to retail investors, a manager of the fund ratings explained, ``Individuals have suffered the most from the bearish stocks.''
Analysts expect that losses will continue to increase on growing uncertainty on the stock market.
``With the uncertainty about stocks growing, losses can increase further in the near future,'' said Yang Eun-hee, a fund analyst for Korea Investment & Securities.
The analyst added that the best possible option for retail investors is to invest in funds through installments over the long-run rather than redeeming their equity products at this stage as long-term investment will help offset short-term losses.
Yang, however, noted that even though losses and volatility are further escalating, these will not totally stop the flow of money into stock funds.
``We will continue to see a slowdown in the flow of capital into funds going forward rather than seeing an abrupt halt as a growing number of investors are beginning to invest for their retirement,'' said Yang.
According to Korea Investment and the Asset Management Association of Korea, assets under management (AUM) for equity funds stood at 144.3 trillion won as of last week, up 200 billion won from the week before.
Of this, AUM for domestic equity funds totaled 84.3 trillion won, outperforming foreign funds' 60 trillion won.
Funds investing in foreign equities were the most popular product over the last two years with many investors putting their money in emerging market funds.
However, investors started to retrieve their investment holdings especially from China funds early this year as China's stock markets have undergone heavy corrections after relentless gains last year.
The ratings company said China funds lost over 10.7 trillion won over the last nine months, contributing to an increase in overall losses for retail investors as China funds account for 30 percent of the mutual fund market.
``Vietnam funds lost the most money, but since people hold more China funds, the loss from these had a greater impact on the market,'' said Yang.
Vietnam funds shed 37 percent on average, but they account for less than 2 percent of the mutual fund market. China funds lost 33 percent, and if funds investing in a mix of regional equities such as Emerging Asia and BRICs funds are included, investment in Chinese shares take up about 50 percent.
China's benchmark Shanghai Composite Index is barely trading near 2,500 points, down more than 50 percent from the end of last year. Although most China funds available in Korea invest in Chinese shares listed on the Hong Kong stock market, the main Shanghai market has considerable influence on general sentiment. Hong Kong's Hang Seng shares are also trading 20 percent lower on average compared with last year.
``Vietnam shares are beginning to show signs of recovery, but Chinese shares remain sluggish,'' said Cho Yong-hyun, an analyst of Hana Daetoo Securities.
Data show that Vietnam shares have climbed the highest at 10 percent since the beginning of this month, while Chinese shares suffered the most, losing 6 percent.
Park Hyun-chul, a fund analyst of Meritz Securities, said, ``With losses mounting from China funds, there are signs of a slowdown in overseas funds.''
However, he mentioned that it is not at a worrisome stage.
AUM of China funds stood at 21 trillion won as of last week, down 13 billion won from the end of July.