By Kim Tae-gyu
Staff Reporter
Park Ki-hyuk, 34, an office worker in Incheon, invested 30 million won in a domestic equity fund last July when the benchmark KOSPI hovered over 1,800.
At first he was happy with the investment as the index jumped to 2,000 late July, meaning he chalked up a double-digit return in July alone.
However, the euphoria was short-lived since the stock price has gone south due to the global credit crunch. Park believed the stock market would recover only to see the index fall as low as 1,178.51 last week.
This week the KOSPI gained a little to over 1,300 and now Park is thinking of withdrawing his money from the three-year stock fund despite a penalty and overall capital losses.
``When the stock prices kept plunging over the past year, I couldn't withdraw my deposit in the silly hope that the market would eventually rally again,'' Park said.
``But I am tired of that and now my new priority is to get out of the fund immediately with a minimal loss. As soon as the stock index reaches 1,500, I will leave the fund,'' he said.
Experts point out that Park's mentality is representative of the driving force, which leads to the massive sell-off of equity funds ― called a fund run comparable to bank run ― when the stock market rebounds after a long period of decline.
``Thus far, many local fund investors did not withdraw deposits when the stock prices tumbled for a long time. But they did when the stock prices bounced back,'' said Kim Hwi-ghon, a fund analyst at Samsung Securities.
``They want to make up for some losses in such a way. It's about psychology. Fund run occurs due to concerns that stock prices may sink once again,'' Kim said.
Indeed, a fund run happened this May when the KOSPI rebounded to 1,900 after months of decline. Around six trillion won was pulled out of equity funds in April and May.
The government is wary of a fund run because it can prevent stock prices from ricocheting due to the exit of investment money in stocks.
Hence, the government has vowed to keep an eye on any possible fund run, but the problem is only investors can decide on this.
``In advanced countries, we can already detect signs of a fund run. I think Korea is okay now, though,'' SK Securities analyst Ahn Jung-kyun said.
``But if the KOSPI soars over 1,600, the likelihood of a sell-off spree may increase. We need to solve the fund run problem in order to make stock prices rise to higher levels,'' Ahn said.
Currently, domestic equity funds amount to around 83 trillion won accounting for 11.24 percent of the 738 trillion won market capitalization of the country's two stock markets ― the KOSPI and junior Kosdaq.