Deposits, gold and dollars: Korean retail investors retreat to safe havens as stock swings intensify

Korean retail investors are turning defensive, with money that once poured into stocks increasingly flowing into bank deposits and gold.

Song, an office worker, recently pulled some money from Korean stocks and moved it into time deposits. After a stretch of roller-coaster trading on the Kospi, Song has decided not to increase their stock investments for the time being.

“The dollar-won exchange rate seems to have come down significantly recently, so I bought some dollars,” Song said. “Gold prices are also rising again, so I’m keeping an eye on gold as an investment.”

Growing stock market volatility is reshaping the flow of money into banks.

Time deposit balances are approaching a quadrillion won ($721.3 billion), while demand for gold and dollars is also rising.

Meanwhile, sales of exchange-traded funds (ETF) and balances on overdraft credit lines are declining, a sign that enthusiasm for debt-fueled stock investing is fading.

The combined balance of time deposits at Korea’s five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 998.71 trillion won as of Thursday, up 13.77 trillion won from the end of July, according to financial industry data released Sunday

Time deposits returned to growth in May and increased by 35.54 trillion won in July alone. The rise suggests that growing market volatility is prompting investors to move more money into deposits or park their funds at banks while they wait for the market to settle.

Gold investment is also picking up again. Gold bar sales at the five banks totaled 82.96 billion won from Aug. 1 through Aug. 20, about 2.8 times last month's total and the highest since January.

The combined balance of "gold banking" accounts at KB Kookmin, Shinhan and Woori banks rose by 94.8 billion won from the end of July to 1.81 trillion won.

Gold banking is a financial product in which, upon depositing cash into a bank account, gold is credited to the account and traded in very small increments, calculated based on international market prices and exchange rates, providing a convenient way to invest in gold with small amounts of money.

International gold prices, which had weakened after the Iran war, have also rebounded recently.

“Slowing employment growth has weakened expectations for further interest rate increases by the U.S. Federal Reserve, which weakens the dollar,” Yuanta Securities researcher Ko Gyeong-beom said. “At the same time, increased gold purchases by central banks are providing steady underlying demand.”

Dollar deposits have also reached a record high as the dollar-won exchange rate has fallen into the 1,300-won range.

Dollar deposits at the five banks stood at $74.92 billion, up 8 percent from the end of July. This also marked the highest level since data collection began in May 2021.

Deposits held by individuals reached $13.2 billion, the highest in four years and six months, while corporate holdings hit $61.7 billion, the highest in three years and eight months.

“Individuals see the decline in the dollar-won exchange rate as an opportunity to buy dollars,” said a banking industry source. “Companies, meanwhile, are holding on to export proceeds or securing dollars in advance for overseas investments and payments.”

Money flowing toward the stock market, by contrast, is declining. ETF sales at the five banks peaked at 15.32 trillion won in May before falling sharply to just 463.4 billion won between Aug. 1 and Thursday.

Balances on overdraft credit lines also fell by 65.2 billion won to 44.11 trillion won, marking their first decline in four months.

The pullback is seen as another sign that investors who once viewed market declines as opportunities to buy stocks on the cheap are becoming more cautious as sharp swings persist.

BY PARK HYUN-JU [[email protected]]