Market uncertainties prompt flight to safer assets

A growing number of South Korean investors are fleeing to safer assets as a safe haven from the uncertainties of the global economic slowdown, industry sources said Sunday.

The outstanding value of term deposits at five local lenders reached 418 trillion won ($368.7 billion) as of the end of July, up 15 trillion won from 403 trillion won tallied in December 2011, according to financial sources.

The corresponding figure for household debts, however, grew a mere 0.78 percent to 2.4 trillion won in the cited period, compared with the 7.8 percent increase throughout last year.

Real estate had been considered one of the most guaranteed means of investment in South Korea, as the property market prospered for decades on the back of the country’s brisk growth, until it began faltering in the past few years on a slowing economy.

Instead, investors are shifting to safer assets such as bonds and pensions, expecting that the market is not likely to revive anytime soon.

The daily turnover of bonds averaged a total of 20 trillion won last month, up 44 percent from December. This stands in contrast with the stock market here, which saw its daily turnover tumble 28 percent in the same period.

“The epoch in which people borrow money to make bets in equities and real estate is coming to an end. They just want to save their cash now because of a slumping market and unstable future,” a bank official said.

In the insurance market, the premium income from savings insurances sold by life insurers, which yield a higher interest rate based on the lump sum paid by the policyholder, bulked up to more than 1.6 trillion won in the first five months of this year, nearing last year’s total of 1.9 trillion won.

The amount of premium income from immediate annuities, in which the policy owner pays a large sum to the insurer in return for a regular pension later in life, has already surpassed the overall sales from last year as of end-June, according to the sources.

“If the preference for safer assets continues, a slump in consumption and investment is inevitable,” said Lee In-hyung, a chief analyst at the Korea Capital Market Institute. 

(Yonhap News)