Sundae Foreign Financial Assets Reach All-Time High... Record Highs for Three Consecutive Quarters

The Bank of Korea's '2024 Q3 International Investment Position'
Foreign Financial Assets Hit Record High for Fourth Consecutive Quarter

South Korea's net external financial assets (external financial assets minus external financial liabilities), which demonstrate the country's external payment capacity, have broken the record for the highest level for the third consecutive quarter, surpassing $900 billion for the first time.

This is due to the continued boom in overseas securities investment by Seohak Gaemi (Korean investors investing in US stocks) amid the strong performance of the US stock market and others. The external soundness indicators were found to be at a favorable level.

Yonhap News

According to the "2024 Q3 International Investment Position (Provisional)" released by the Bank of Korea on the 20th, South Korea's net external financial assets at the end of the third quarter this year reached $977.8 billion, an increase of $119.4 billion from the end of the previous quarter ($858.5 billion), setting a new record. The increase was the second largest ever, following Q3 2021 ($121.2 billion). This was largely due to the continuous increase in external financial assets, which represent domestic residents' overseas investments, for four consecutive quarters. External financial liabilities, which represent foreign investment in Korea, decreased.

The balance of South Korea's external financial assets has set a new record for four consecutive quarters. In Q3, external financial assets amounted to $2.5135 trillion, an increase of $118.3 billion from the end of the previous quarter, mainly driven by residents' overseas securities investments. Direct investment increased by $30.2 billion compared to the previous quarter, centered on secondary battery companies. Securities investment rose by $64.6 billion due to a significant increase in equity securities amid continued strength in overseas stock investments and the US stock market, as well as an increase in debt securities such as bonds, driven by heightened expectations of interest rate cuts.

Park Seong-gon, head of the Foreign Investment Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained the significant increase in net external financial assets by saying, "The large increase was mainly due to the continuous rise in external financial assets and residents' overseas securities investments for four consecutive quarters. The increase in external financial assets and residents' overseas securities investments was the second largest ever."

He added, "The expansion of overseas securities investment was due to both transaction and non-transaction factors showing a significant positive impact, such as increased purchases of overseas stocks and bonds and a rise in the valuation of held securities. The US stock market continued its rally, the European Union (EU) stock market rebounded, and in Q3, amid concerns about a US recession, expectations for a US base rate cut, including a 0.5 percentage point cut in September (Big Cut), increased, leading to a decline in US Treasury yields."

On the other hand, external financial liabilities decreased by $1.1 billion from the end of the previous quarter to $1.5357 trillion, as non-residents' domestic direct investment declined. Direct investment increased by $19 billion compared to the previous quarter due to continued investment in gaming and financial sectors and the appreciation of the Korean won, which increased the USD equivalent amount. However, securities investment decreased by $53.3 billion due to a decline in foreign stock investment and a sharp drop in the KOSPI, with equity securities falling significantly compared to the previous quarter. Debt securities increased by $26.6 billion due to the appreciation of the Korean won increasing the USD equivalent amount, resulting in a net decrease of $26.7 billion compared to the previous quarter.

External Soundness Indicators Favorable... "Short-term External Debt Increase Due to Expansion of Foreign Investment"

External soundness indicators continued to show a favorable trend. The ratio of short-term external debt to reserve assets (foreign exchange reserves), which indicates external debt soundness, rose to 37.8%, up 3.4 percentage points from 34.4% at the end of the previous quarter. Although the ratio increased due to the rise in short-term external debt, it remained lower than the average of the previous three years' quarters (38.4%).

The proportion of short-term external debt within total external debt, which indicates external payment capacity, recorded 22.6%, up 1.0 percentage point from 21.6% at the end of the previous quarter. Although the ratio increased with the rise in short-term external debt, it was still lower than the average of the previous three years' quarters (26.6%).

Park explained, "The increase in the proportion and ratio of short-term external debt may be viewed somewhat negatively, but South Korea's external soundness remains favorable. This rise is attributed to a significant increase in short-term external debt since July, driven by expanded incentives for short-term net transactions, increased foreign purchases of short-term bonds, and increased borrowing of bond investment funds by foreign bank branches."

He added, "It should be noted that an increase in short-term external debt due to foreign investment expansion, rather than simple borrowing caused by foreign exchange supply-demand imbalances, can also lead to a rise in the proportion and ratio of short-term external debt."