Overseas Securities Investment Surpasses $1 Trillion for the First Time
Net Investment in Foreign Stocks and Bonds Exceeds Valuation Losses from US Stock Market Decline
External Financial Liabilities Up $22.2 Billion... Sharp Increase Compared to Assets
Driven by Increased Foreign Bond Investment and Valuation Gains from Korean Stock Market Rebound
South Korea's net external financial assets (external financial assets minus external financial liabilities), which demonstrate the country's ability to make payments abroad, turned to a decline for the first time in one year and three months (five quarters). This was the result of external financial liabilities, which reflect foreign investment in Korea, increasing more than external financial assets, which represent Koreans' overseas investments. While external financial assets grew slightly due to increased overseas direct investment transactions and securities purchases, this was largely offset by a decrease in valuation stemming from corrections in the US stock market, resulting in only a modest overall increase. In contrast, external financial liabilities rose sharply compared to assets, as foreign investors increased their purchases of Korean bonds and the rebound in domestic stock prices led to higher valuations of equities.
According to the "International Investment Position (Preliminary) for Q1 2025" released by the Bank of Korea on the 28th, as of the end of the first quarter this year, South Korea's net external financial assets stood at $1.084 trillion, down $18.1 billion from $1.102 trillion at the end of the previous quarter. This marks the first decline in five quarters since Q4 2023.
The slight increase in external financial assets, mainly from overseas direct investment and securities investment, was outweighed by a larger increase in external financial liabilities, driven by higher valuations of domestic stocks. Additionally, temporary decreases in reserve assets due to foreign exchange swaps with the National Pension Service, and a reduction in external assets held by deposit-taking institutions?especially in items with high short-term volatility?also contributed to the decrease in net external financial assets.
Overseas Securities Investment Surpasses $1 Trillion for the First Time... Net Investment in Foreign Stocks and Bonds Outweighs US Stock Market Valuation Losses
At the end of the first quarter, South Korea's external financial assets stood at $2.5168 trillion. This was an increase of $4.2 billion from the previous quarter, mainly due to residents' overseas securities investments ($17.6 billion).
Securities investment increased by $17.6 billion, reaching $1.0118 trillion and surpassing the $1 trillion mark for the first time in history. Although non-transaction factors such as valuation losses from US stock market corrections reduced the total by $20.3 billion, continued purchases of overseas stocks and bonds by domestic investors led to a much larger increase from transaction factors ($37.9 billion). Net investment in overseas stocks expanded, resulting in a $5.4 billion increase in equity securities, while expectations of interest rate cuts and a preference for safe assets led to a $12.2 billion increase in debt securities.
Direct investment at the end of the first quarter stood at $778.4 billion, up $15.7 billion from the previous quarter. This was due to continued overseas investments by Korean companies in the automotive and secondary battery sectors, which increased transaction factors by $8.4 billion, as well as a weaker US dollar, which raised the dollar-converted value of other currency-denominated direct investment assets by $7.4 billion as a non-transaction factor.
However, other investments, mainly by deposit-taking institutions, decreased by $13 billion. Reserve assets, which represent the total amount of foreign exchange reserves, temporarily decreased by $5.9 billion to $409.7 billion, mainly due to an expansion of foreign exchange swaps with the National Pension Service.
External Financial Liabilities Up $22.2 Billion... Driven by Increased Foreign Bond Investment and Gains from Korean Stock Market Rebound
At the end of the first quarter, external financial liabilities totaled $1.4328 trillion, an increase of $22.2 billion from the previous quarter. Non-resident securities investment rose by $30.1 billion to $865 billion, leading the increase in external financial liabilities.Both transaction factors ($6.4 billion) and non-transaction factors ($23.6 billion) increased, due to inflows of foreign bond investment and rising domestic stock prices.Equity securities increased by $21.5 billion as foreign investors gained valuation profits from the rebound in Korean stock prices, and debt securities also rose by $8.6 billion, mainly due to continued foreign investment in long-term bonds.
The balance of foreign direct investment increased by $4.1 billion to $291.1 billion, mainly due to equity investments. Continued inflows of foreign equity investment and a rise in the dollar-converted value of won-denominated liabilities due to a weaker dollar resulted in both transaction factors ($2.9 billion) and non-transaction factors ($1.2 billion) being positive.
Park Sungkon, head of the Overseas Investment Statistics Team at the Bank of Korea's Economic Statistics Department 1, stated, "From the perspective of transaction factors closely tied to the mid- to long-term trend of net external financial assets, the current account surplus has continued from last year, and substantial overseas direct investment and securities investment have also persisted, keeping net external financial assets well above $1 trillion." He explained, "Overseas direct investment and overseas securities investment account for about 70% of external financial assets and are the key drivers that determine the direction and growth of net external financial assets."
He added, "In terms of transaction factors, assets have increased much more than liabilities due to continued overseas direct investment and securities investment, leading to an increase in net external financial assets. However, when non-transaction factors are also considered, the impact of valuation gains from the rebound in Korean stock prices and valuation losses from the decline in US stock prices caused the increase in liabilities to exceed the increase in assets." He analyzed, "As a result, the balance of net external financial assets turned to a slight decline for the first time in five quarters."
Despite Decrease in Reserve Assets and Increase in Short-Term External Debt, "Details Matter"... External Debt Soundness and Payment Capacity Remain 'Sound'
Both the soundness of external debt and the ability to make external payments are assessed as sound. The ratio of short-term external debt to reserve assets, an indicator of external debt soundness, rose by 1.2 percentage points to 36.5% at the end of the quarter, up from 35.3% at the end of the previous quarter. The proportion of short-term external debt within total external debt, which reflects external payment capacity, also increased by 0.1 percentage points to 21.9%, up from 21.8% at the end of the previous quarter. This was due to a decrease in reserve assets and an increase in short-term external debt.
Team leader Park stated, "Since the sharp decline in 2023, the indicators have fluctuated at a lower level than in the past, so both the soundness of external debt and external payment capacity can be considered sound," and added, "The increase in short-term external debt is due to greater incentives for short-term arbitrage, which has led to increased inflows of foreign funds into short-term government bonds. The decrease in reserve assets is also attributable to foreign exchange market stabilization measures, such as foreign exchange swap transactions with the National Pension Service, which will be reversed in the future. Therefore, it is difficult to interpret these as representing a long-term trend."
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