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🇰🇷 South Korea /Economy & Trade

South Korea's net external financial assets plummet by record $69 billion in Q2

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • South Korea's net external financial assets decreased by a record $68.95 billion in the second quarter, nearing $700 billion.
  • This sharp decline is attributed to a surge in foreign investment in the domestic stock market, particularly the KOSPI.
  • Despite the decrease in net assets, the country's net external debt remained stable, increasing slightly due to export growth.

South Korea's net external financial assets experienced their largest quarterly drop on record, shrinking by $68.95 billion to approximately $64 billion by the end of June.

This significant decrease, which brings the total close to $700 billion, is primarily driven by a substantial increase in foreign holdings of domestic stocks. The robust performance of the KOSPI index during the second quarter led to a sharp appreciation in the valuation of these foreign investments.

If the domestic stock price rise continues at the same level as the first half of this year, the possibility of net external financial assets rapidly decreasing to this extent is not high. If domestic stock prices rise moderately and the current account surplus continues, net external financial assets are expected to increase again.

— Bank of Korea OfficialProjecting future trends for South Korea's net external financial assets.

The Bank of Korea's preliminary international investment position data reveals that while net external financial assets contracted, the country's net external debt saw a modest increase. This was largely due to a faster rise in external assets compared to external liabilities, fueled by strong export performance which boosted corporate foreign deposits.

Experts note that while the valuation of foreign-held stocks increased external liabilities, it does not necessarily indicate increased borrowing or repayment burdens for domestic companies. They emphasize that assessing external payment capacity requires a separate analysis of external debt and assets, distinct from the broader net financial asset figure. The net external debt, which excludes equity-like liabilities, showed a slight increase of $2.3 billion, marking a return to growth after three quarters.

When domestic stock prices rise due to improved corporate performance, the value of foreign-held stocks and Korea's external financial liabilities both increase, but this does not mean that foreign countries have borrowed more money or that the repayment burden of domestic companies has increased.

— Choi Jae-hyuk, Head of Capital Movements Analysis Team at the Bank of KoreaExplaining the implications of rising stock prices on external financial liabilities.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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