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COVID-19 pushes money move from insurance to stock market

Since Korea's benchmark KOSPI hit the lowest point in mid-March due to concerns over the rapid spread of COVID-19, the nation's stock rebounded from the pandemic shock, attracting more retail investors. / Yonhap
Since Korea's benchmark KOSPI hit the lowest point in mid-March due to concerns over the rapid spread of COVID-19, the nation's stock rebounded from the pandemic shock, attracting more retail investors. / Yonhap

By Anna J. Park

One ascertainable rationale for the dim outlook of companies' projecting weak second-quarter earnings is COVID-19.

While expectations are the stock market will be betting that corporate earnings may start bouncing back from the bottom in the third quarter at the earliest, it is too early to identify the specific the point for that bounce to begin.

Earlier thoughts and some early macro indications are showing that the intensity of rebound won't match investors' hope. But investors are always searching for "next investment spots" and amid the near zero-range interest rates, more retail investors are weighing in on positive aspects of the stock market.

This year's upcoming earnings season will be difficult because the growing uncertainty over the impact of the pandemic has led a lot of both blue-chip and other listed companies to withdraw guidance, which is unsurprising to see.

One of the markets that is witnessing a loss of capital is the insurance sector. Simply put, money invested in insurance companies has been badly battered.

According to recent data released by the insurance industry, the total amount of insurance cancellation refunds during the first half of this year from eight major companies, including Samsung Life, Hanwha Life, Kyobo Life, DB Insurance, Hyundai Marine & Fire Insurance, stood at 14.27 trillion won ($11.8 billion), which is a 7.7 percent increase from the same period last year.

Normally, insurance policy holders don't cancel their plans, as the refund deducts various fees like management fee and cancellation fee, resulting in a less total amount than the holder paid. Yet, insurance holders' leaving the market was seemingly evident during the first half of this year.

Market watchers view it from two-assessed aspects. First, insurance plan holders had no choice but to cancel their plans to secure money for daily livelihoods due to decreased income due to the pandemic-led uncertainty. And second, the holders see a better chance of garnering profits in other financial markets, notably the liquidity-enriched stock markets.

The first cause is well explained by the fact that the insurance termination rate rapidly increased from February. At the start of the year, the total amount of insurance cancellation refund in January saw a decrease by 3.4 percent from December last year. The cancellation refund suddenly increased by 19.3 percent in February, month-on-month, and 28.4 percent in March. The total amount of insurance cancellation refund during the first quarter alone saw a year-on-year 14.5 percent increase.

Insurance firms came up with various options enabling holders to delay payment of monthly premiums, yet it couldn't stop the trend. While the cancellation refund amount somewhat slowed down in April and May, partly thanks to the government's disaster relief money, insurance holders' cancellation refund spiked in June again. In June, its refund amount increased by 17.5 percent year on year.

Cho Yong-jun, Hana Financial Investment's research head, said insurance holders' cancelling their plans is because they'd like to invest the money into the stock market. He pointed out the monthly average cancellation amount of life insurances stood at 2.2 trillion won per month, yet it rose to 3.2 trillion won in March, up 46.6 percent from previous month.

In contrast, securities firms' deposit money for the stock markets continued to increase to 46 trillion won in the same month, a whopping 75.2 percent up from last year's monthly average of 26 trillion won.

Interest rates influence economic activities, money flow and even retirement planning. Economic theory and various historical data are showing that such low rates boost stock prices in the short-term and investors normally assume manageable risks for better profits in the equity market amid ample liquidity during periods of zero-range interest rates.

What is noteworthy is that deposits for trust fund accounts show decreases, while securities firms' depository assets have increased, Cho said.

"COVID-19 makes retail investors prefer to conduct direct investment into the stock markets, rather than purchasing mutual funds products," he said, recommending that investors diversify their investment into blue-chip stocks related to fourth industrial revolution in Korea, China and the U.S., high-quality corporate bonds, gold, and major REIT stocks.


Since Korea's benchmark KOSPI hit the lowest point in mid-March due to concerns over the rapid spread of COVID-19, the nation's stock rebounded from the pandemic shock, attracting more retail investors. / Yonhap
Since Korea's benchmark KOSPI hit the lowest point in mid-March due to concerns over the rapid spread of COVID-19, the nation's stock rebounded from the pandemic shock, attracting more retail investors. / Yonhap

By Anna J. Park

One ascertainable rationale for the dim outlook of companies' projecting weak second-quarter earnings is COVID-19.

While expectations are the stock market will be betting that corporate earnings may start bouncing back from the bottom in the third quarter at the earliest, it is too early to identify the specific the point for that bounce to begin.

Earlier thoughts and some early macro indications are showing that the intensity of rebound won't match investors' hope. But investors are always searching for "next investment spots" and amid the near zero-range interest rates, more retail investors are weighing in on positive aspects of the stock market.

This year's upcoming earnings season will be difficult because the growing uncertainty over the impact of the pandemic has led a lot of both blue-chip and other listed companies to withdraw guidance, which is unsurprising to see.

One of the markets that is witnessing a loss of capital is the insurance sector. Simply put, money invested in insurance companies has been badly battered.

According to recent data released by the insurance industry, the total amount of insurance cancellation refunds during the first half of this year from eight major companies, including Samsung Life, Hanwha Life, Kyobo Life, DB Insurance, Hyundai Marine & Fire Insurance, stood at 14.27 trillion won ($11.8 billion), which is a 7.7 percent increase from the same period last year.

Normally, insurance policy holders don't cancel their plans, as the refund deducts various fees like management fee and cancellation fee, resulting in a less total amount than the holder paid. Yet, insurance holders' leaving the market was seemingly evident during the first half of this year.

Market watchers view it from two-assessed aspects. First, insurance plan holders had no choice but to cancel their plans to secure money for daily livelihoods due to decreased income due to the pandemic-led uncertainty. And second, the holders see a better chance of garnering profits in other financial markets, notably the liquidity-enriched stock markets.

The first cause is well explained by the fact that the insurance termination rate rapidly increased from February. At the start of the year, the total amount of insurance cancellation refund in January saw a decrease by 3.4 percent from December last year. The cancellation refund suddenly increased by 19.3 percent in February, month-on-month, and 28.4 percent in March. The total amount of insurance cancellation refund during the first quarter alone saw a year-on-year 14.5 percent increase.

Insurance firms came up with various options enabling holders to delay payment of monthly premiums, yet it couldn't stop the trend. While the cancellation refund amount somewhat slowed down in April and May, partly thanks to the government's disaster relief money, insurance holders' cancellation refund spiked in June again. In June, its refund amount increased by 17.5 percent year on year.

Cho Yong-jun, Hana Financial Investment's research head, said insurance holders' cancelling their plans is because they'd like to invest the money into the stock market. He pointed out the monthly average cancellation amount of life insurances stood at 2.2 trillion won per month, yet it rose to 3.2 trillion won in March, up 46.6 percent from previous month.

In contrast, securities firms' deposit money for the stock markets continued to increase to 46 trillion won in the same month, a whopping 75.2 percent up from last year's monthly average of 26 trillion won.

Interest rates influence economic activities, money flow and even retirement planning. Economic theory and various historical data are showing that such low rates boost stock prices in the short-term and investors normally assume manageable risks for better profits in the equity market amid ample liquidity during periods of zero-range interest rates.

What is noteworthy is that deposits for trust fund accounts show decreases, while securities firms' depository assets have increased, Cho said.

"COVID-19 makes retail investors prefer to conduct direct investment into the stock markets, rather than purchasing mutual funds products," he said, recommending that investors diversify their investment into blue-chip stocks related to fourth industrial revolution in Korea, China and the U.S., high-quality corporate bonds, gold, and major REIT stocks.


Park Ji-won annajpark@koreatimes.co.kr

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