The number of cash management accounts (CMAs) in South Korea has topped 40 million, but total balances have fallen by nearly 11 trillion won from this year's peak. Accounts grew on demand for stock investing and initial public offering subscriptions, while a stock market correction and rising bank deposit rates triggered a reverse flow of money back into banks. Brokerages are raising CMA yields one after another to hold on to cash waiting to be invested.
The number of CMAs stood at 40,098,260 as of the 23rd of this month, according to the Korea Financial Investment Association on the 28th. Balances totaled 107.0036 trillion won, down 10.836 trillion won, or 9.2%, from this year's peak of 117.8396 trillion won on April 24. The average balance per account also fell to about 2.67 million won from roughly 2.99 million won. Average daily balances declined to 104.498 trillion won in August from 113.6298 trillion won in April. During the COVID-19 pandemic, when markets ran hot, CMA accounts swelled by 10 million in just one year, and growth gained momentum again through the first half of this year. But if the recent range-bound market persists, that pace is expected to slow.
By type, repurchase agreement (RP) accounts held the largest balance at 45.5913 trillion won as of that date. Other types, including money market wrap accounts, followed at 32.5407 trillion won, with accounts invested in brokerage-issued notes at 24.2448 trillion won.
The divergence between rising account numbers and falling balances reflects money moving back from brokerages to banks, as the stock market turned choppy and bank deposit rates climbed following the Bank of Korea's rate increase.
As of the 23rd of this month, the top interest rate on one-year time deposits at the five largest commercial banks ranged from 3.4% to 3.6% a year, up about 0.5 percentage point from the end of June depending on the bank. Balances in both demand deposits and time deposits at the five banks each rose by more than 5 trillion won this month. With the market under pressure, money that has yet to find a destination has a stronger incentive to head into bank deposits.
Brokerages are responding by lifting CMA yields. Korea Investment & Securities has applied an annual rate of 2.85% to individual CMAs invested in brokerage-issued notes since the 4th of this month. Mirae Asset Securities raised the yield on such accounts to 2.60% a year from 2.40% on the 31st of last month. KB Securities also raised its RP account yield to 2.50% from 2.25% and its note-based account yield to 2.60% from 2.35% on the same day. Eugene Investment & Securities lifted the yield on its flexible CMA-RP product to 2.75% a year from 2.50% starting the 28th of last month. Still, these yields remain below time deposit rates at commercial banks amid the current rate-hike trend.
CMA balances have partly rebounded since the yield increases. Total balances as of the 23rd of this month were 2.3004 trillion won higher than at the end of August. Individual balances rose 1.366 trillion won, or 1.46%, accounting for 59.4% of the total increase, while corporate balances gained 934.5 billion won. On the 23rd alone, individual money jumped 1.2008 trillion won in a single day.
Setting CMA yields above bank deposit rates is not easy, however, because higher yields increase costs for brokerages. Beyond growing CMA balances, brokerages also face the task of converting those customers into follow-on trades in stocks, bonds and funds.
An official in the financial investment industry said: "Money leaving CMAs may be part of a process in which some of the cash that suddenly rushed from banks into the stock market is returning. Funds can move back and forth in the short term, but over a longer horizon, it is true that a lot of money is still coming into the stock market."
