Investors are shunning initial public offering (IPO) funds in South Korea as they deliver a low return of 2 percent versus other equity funds of near 10 percent despite the strong stock markets in 2020 and 2021.

According to data from local financial market tracker FnGuide on Wednesday, public offering funds have delivered a return rate of 2.01 percent so far this year, which is far below the rate of other funds such as equity funds (10.41 percent) and exchange trade funds (9.12 percent).

The low return is pushing investors to take money out from the funds. More than 130 billion won ($106.6 million) in funds were taken out this year and 3.9 trillion won last year. The outflow is in contrast to 3.3 trillion won flowed into local equity funds.

“Investors are turning away from the public offering funds as some of the major IPOs that caught their interest have been withdrawn amid sluggish stock market,” said Oh Gwang-young, an analyst at Shinyoung Securities Co.

The country’s IPO market has been sluggish since last year. According to Shinyoung Securities, institutional demand for public offerings and retail competition fell 23~44 percent last year from a year ago. Also, only 54 percent of the IPOs were priced at above their high-end range, down from 86 percent in 2021.

Massive funds flowed into the IPO market in 2020 and 2021 as investors sought offerings in big companies like LG Energy Solution Ltd., KakaoBank Corp., and Kakaopay Corp.

This year, however, most of the offerings were mid-tier companies with under 1 trillion won in market capitalization. Kurly Inc. and Kbank Inc. have postponed their IPOs due to the chilled market.

Investors have also turned pickier on the new offerings as they think about the immediate profits companies deliver whereas in the past they sought corporate value based on potential improvement in earnings.

By Cha Chang-hee and Chang Iou-chung

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]