[Institution Perspective] Overseas Stock Investment 'Pause'... Will High Exchange Rates Lead to a Restraint Order on Overseas Investment?

Institutional Investors Hold Back on New Overseas Investments Due to High Exchange Rates
Prolonged High Exchange Rate Situation Expected to Lead to Overseas Investment Restraints

As the won-dollar exchange rate touched 1,400 won for the first time in 1 year and 5 months, domestic institutions are closely monitoring exchange rate volatility and refraining from new overseas investments. Among institutions, there is also speculation that the government and financial authorities may issue an unofficial order to restrain overseas investments.

According to the investment banking (IB) industry on the 18th, major institutional investors expect that if the high exchange rate situation continues, an order to restrain overseas investments will be triggered. Institutions are preparing for the possibility of such an order while quickly seeking alternative investment destinations.

The Chief Investment Officer (CIO) of Institution A said, "The U.S. economy is performing well on its own, but concerns are rising due to delayed interest rate cuts and instability in the Middle East. From an import perspective, prices could be stimulated again, and if the high exchange rate situation persists, our institutional investors are closely watching whether an overseas investment restraint order will be issued."

The CIO of Institution B said, "The government cannot openly issue an overseas investment restraint order, but there may be hints to exercise some restraint. From an institutional perspective, after the general election, rather than the unstable domestic real estate market, overseas real estate, which has already burst and is clean, could be a better investment destination, but the situation has become somewhat ambiguous now."

If institutions buy physical dollars domestically for overseas stock or real estate investments, dollar purchases in the Seoul foreign exchange market increase, which in turn fuels the rise of the won-dollar exchange rate (weakening of the won).

The CIO of Institution C hinted, "It is not yet a situation where an overseas investment restraint order has been issued, but marketable assets, especially overseas stocks, are too expensive at the current exchange rate level, making new investments burdensome." The CIO of Institution D said, "For the time being, domestic institutions find overseas investments difficult," adding, "We are focusing mainly on domestic loan funds."

Already committed investments must be executed if there is a capital call, but overseas investments are expected to remain in a 'wait-and-see' stance for the time being. The CIO of Institution E said, "A conservative attitude seems appropriate for now, but if one has a positive long-term view, this adjustment can be seen as an opportunity to increase allocation."

Institutions forecast that the high interest rate and high exchange rate environment will persist for the time being. There is also an expectation that as U.S. Treasury issuance increases ahead of the U.S. presidential election to inject funds, bond prices will fall and interest rates will rise according to supply and demand principles.

As the exchange rate surged, foreign exchange authorities actively engaged in verbal interventions. The finance ministers of Korea and Japan recently shared serious concerns over the sharp depreciation of the won and yen currencies and stated that appropriate measures could be taken to address foreign exchange market volatility. On the 16th (local time), Choi Sang-mok, Deputy Prime Minister and Minister of Strategy and Finance, and Suzuki Shunichi, Japan’s Finance Minister, met at the World Bank (WB) in Washington D.C. to discuss this. The depreciation of both currencies has continued as expectations for the timing of U.S. interest rate cuts have been delayed more than anticipated. Risk-averse sentiment has also increased amid escalating Middle East tensions, such as Iran’s attack on Israel.