Foreigners Outshine Korean Investors Abroad; Net External Financial Assets Decline for Second Quarter

South Korea's net external financial assets have shrunk for two consecutive quarters, reaching $753.6 billion as of the end of March. This decrease stems from foreign investment in South Korea growing at a faster pace than South Koreans' investment abroad.

According to the Bank of Korea's "Quarterly International Investment Position" released on May 27, domestic overseas financial assets, representing South Koreans' investments abroad, increased by $15 billion from the end of last year to $2.8826 trillion. This rise was primarily driven by a $15.4 billion increase in direct investments by domestic companies in overseas factories. However, securities investment, including South Koreans purchasing foreign stocks, saw a decrease of $15.1 billion over the three months.

“

The increase in the valuation of domestic companies and the rise in domestic stock prices acted as factors for the increase in external financial liabilities.

Conversely, external financial liabilities, which encompass foreign investment in South Korea, rose by $147.1 billion from the end of last year to $2.129 trillion. Foreigners' securities investment increased by $108.3 billion, while direct investment decreased slightly by $1.3 billion. The booming stock market appears to have led to increased foreign securities investment and a rise in external financial liabilities.

Moon Sang-yoon, head of the Bank of Korea's External Investment Statistics Team, explained that the increase in the valuation of domestic companies and the rise in domestic stock prices contributed to the growth of external financial liabilities. He acknowledged that a larger net external financial asset position is generally favorable for external stability but noted that the growth trend in external financial assets continues. He also pointed out that the increase in external financial liabilities is partly due to price factors and is supported by the performance of domestic companies, suggesting some positive aspects.

“

It is undeniable that having large net external financial assets is better for external stability, but we must also consider that the growth trend of external financial assets is continuing.