‘Stocks Are Too Scary to Buy’: $3 Billion Rushes Into Ultra-Short Bond Funds in a Month

A refuge in volatile markets: 4.4 trillion won flowed into ultra-short bond funds in a month

Assets in ultra-short bond funds near 60 trillion won

Up more than 7 trillion won since July’s market rout

Parking-style ETFs also draw heavy inflows

Investors stay on the sidelines as stocks correct

Brokerages see volatility staying high for now

More than 4 trillion won ($3.0 billion) flowed into ultra-short bond funds in the past month alone, highlighting their appeal as a refuge from stock-market volatility. Investors appear to be parking cash in products that can be managed safely over short periods while waiting for a clearer market direction.

FnGuide, a South Korean financial data provider, said assets in 78 ultra-short bond funds stood at 57.0394 trillion won ($41.1 billion) as of Oct. 29, up 4.2104 trillion won ($3.0 billion) from a month earlier. The total has risen by 7.0835 trillion won ($5.1 billion) in the three months since July, when the Kospi dropped more than 22% over the month.

Ultra-short bond funds invest in government debt and monetary stabilization bonds with less than one year remaining to maturity. They let investors manage cash over short periods while earning returns comparable to bank time deposits. Most do not charge early redemption fees, making them relatively liquid.

Among individual funds, KB Tomorrow Dream Ultra Short-Term Bond Securities Investment Trust (Bond) drew 272.5 billion won ($196 million) over the past month. Koreit Short-Term Rate Mixed Asset Investment Trust and Koreit Select Short-Term Bond Securities Investment Trust [Bond] attracted 200.5 billion won ($144 million) and 85.2 billion won ($61 million), respectively.

Parking-style exchange-traded funds also drew strong inflows. Koscom ETF Check data showed KODEX Money Market Active had attracted 2.31 trillion won ($1.66 billion) as of the previous day, while TIGER Money Market Active and KODEX Short-Term Bond drew 448.1 billion won ($322 million) and 384.2 billion won ($276 million), respectively.

Investors are using ultra-short bond products as a shelter as stock-market volatility spikes and concerns linger over the Middle East conflict, the possibility of further U.S. rate increases and spending tied to artificial intelligence. They appear to be parking money in those funds and waiting on the sidelines until the market’s direction becomes clearer.

An asset-management industry official said inflows into ultra-short bond funds have been pronounced among both retail and institutional investors. Redemption proceeds from equity ETFs and stock funds appear to be moving into the products as the domestic stock market continues to correct.

Brokerages expect volatility in the stock market to persist for the time being. That could sustain demand for short-term bond products among investors looking to keep a defensive stance.

Cho A-in, an analyst at Samsung Securities, said South Korea’s stock market will likely remain highly volatile for now, depending on earnings and outlooks from AI companies as well as changes in macro conditions and investor flows. Whether the latest correction proves to be a temporary hit to sentiment or leads to downward revisions in profit forecasts for AI-related companies will be a key factor in determining the market’s next direction, she added.

Go Jeong-sam, Hankyung.com reporter jsk@hankyung.com