Korea’s financial markets grow at record pace

Total investment transactions per year surpass $18.9 trillion


The amount of investment circulating in the South Korean stock, bond and derivatives markets topped 20,000 trillion won ($18.9 trillion) per year, government data showed on Sunday.

The Financial Supervisory Service said investment transactions between April 2010 and March 2011 totaled 22,378 trillion won, marking an increase of 500 percent from 12 years earlier. The total is equal to more than 19 times the country’s gross domestic product of 1,172.8 trillion won in 2010.

The figure illustrates the explosive growth of the local financial markets, which saw their combined trade volume galloping at a faster clip in recent years on the strength of a growing pool of domestic investors.

Stock transactions alone amounted to 3,875 trillion won, and securities houses reaped 5.36 trillion won in fees thanks largely to trades by about 4.8 million local stock investors.

Bonds and mutual funds generated 4,130 trillion won and 94 trillion won, respectively, in transactions.

The greater-than-expected volume of funds channeled through investment vehicles suggests the financial markets are playing a bigger role for the country’s overall economy. Korean companies are benefiting from the expansion of the markets where they raise capital to build new facilities, purchase machinery and cultivate fresh businesses.

Individual investors here are generally being given more chances to tap into the financial markets as a new source of income in their portfolios.

But the rapid expansion of the financial markets also comes with a dark side. A case in point is the indictment of top executives at major securities houses over irregularities concerning highly risky financial instruments such as Equity Linked Warrant.

Futures trades, which have been deemed extremely volatile, generated transactions valued at 12,964 trillion won, or 57.9 percent of the total financial investment tractions, in the most recent fiscal year.

When the country faced the Asian financial crisis in 1998, the transactions for investment purposes were worth just 4,503 trillion won. The meager volume, however, began to climb in the following years as Korea took measures to bolster the financial markets. The figure surpassed the 10,000 trillion won mark in 2000 before rising further to 14,000 trillion won in 2006.

A turning point came in 2007 when the total investment-related transactions in the financial markets broke through the 20,000 trillion won mark, helped greatly by a noticeable pickup in the benchmark stock price indexes in that year. The KOSPI was 1,434.46 at the end of 2006 before soaring to 2,064.85 in October 2007.

The investment transactions went down to 18,397 trillion won in 2009, hurt by the lingering negative effects of the global financial crisis, only to rebound strongly in 2010 to reclaim the 20,000 trillion won mark.

The number of stock investors in Korea rose from 3.3 million in 2000 to 4.8 million last year. Almost one in five economically active people here are now putting their money on the stock market.

The total market capitalization of the Seoul bourse, which stood at 217 trillion won in 2000, rose almost six-fold to 1,240 trillion won last year.

By Yang Sung-jin (insight@heraldcorp.com)