Net External Financial Assets Rise for First Time in Three Quarters Amid Strong US Stock Market

External Financial Assets and Overseas Securities Investment Hit Record Highs
External Financial Liabilities Rise as Foreign Investment Increases Amid Korean Stock Market Gains

South Korea's net external financial assets (external financial assets minus external financial liabilities), which demonstrate the country's ability to make external payments, increased for the first time in three quarters. Both assets and liabilities saw growth mainly driven by securities investments due to rising stock prices at home and abroad. However, the increase in reserve assets, which represent the total foreign exchange reserves, led to a greater rise in external financial assets compared to external financial liabilities.

According to the "International Investment Position for the Third Quarter of 2025 (Preliminary)" released by the Bank of Korea on November 19, South Korea's net external financial assets at the end of the third quarter stood at 1.0562 trillion dollars, up 25.8 billion dollars from 1.0304 trillion dollars at the end of the previous quarter. After turning negative in the first quarter of this year, net external financial assets returned to an upward trend after three quarters.

This is because external financial assets, which reflect overseas investments by domestic residents, increased more than external financial liabilities, which represent foreign investments in South Korea. External financial assets rose by 115.8 billion dollars, as domestic investors expanded their overseas stock investments amid strong performance in the US stock market, and reserve assets increased due to higher returns on foreign exchange reserves. External financial liabilities grew by 90 billion dollars, driven by increased foreign investment in domestic stocks, but the depreciation of the Korean won limited the expansion of liability valuations, resulting in a smaller increase compared to external financial assets.

External Financial Assets Reach All-Time High... Overseas Securities Investment Surpasses 1 Trillion Dollars for Third Consecutive Quarter

At the end of the third quarter, South Korea's external financial assets amounted to 2.7976 trillion dollars, marking an all-time high. This represents an increase of 115.8 billion dollars compared to the previous quarter.

The largest contributor to this increase was overseas securities investment by residents. Overseas securities investment rose by 89 billion dollars from the previous quarter, reaching 1.214 trillion dollars. Breaking this down, equity securities increased by 81.4 billion dollars to 926 billion dollars, as US stock prices climbed and overseas stock investments expanded. Debt securities (288 billion dollars) also rose by 7.6 billion dollars, as expectations for US interest rate cuts continued to drive overseas bond investments.

Direct investment reached 813.5 billion dollars at the end of the third quarter, up 8.7 billion dollars, mainly due to continued overseas equity investment in the secondary battery sector.

Other investments, mainly by deposit-taking institutions, increased by 6.8 billion dollars to 308.3 billion dollars. Reserve assets, which represent the total foreign exchange reserves, rose by 11.8 billion dollars to 422 billion dollars, driven by higher returns on asset management.

However, there is significant uncertainty expected in the fourth quarter. Lim Inhyeok, head of the Overseas Investment Statistics Team at the Economic Statistics Department 1 of the Bank of Korea, stated, "External financial assets are largely comprised of equity securities, meaning overseas stocks. There are variables such as concerns over excessive investment in AI and delays in expectations for US interest rate cuts," adding, "These factors affect both stocks and bonds, so it is difficult to predict how the trend will unfold going forward."

External Financial Liabilities Increase by 90 Billion Dollars... Foreign Investment Rises Amid Strong Domestic Stock Market

At the end of the third quarter, external financial liabilities increased by 90 billion dollars from the previous quarter, totaling 1.7414 trillion dollars.

The main driver of this increase was foreign investment in domestic stocks. Non-residents' securities investment (1.1395 trillion dollars) rose by 88.5 billion dollars. Specifically, equity securities increased by 89.6 billion dollars due to gains in domestic stock prices, which led to higher valuation gains for foreign investors. In contrast, debt securities decreased by 1.1 billion dollars as incentives for arbitrage trading diminished and the depreciation of the Korean won had an impact, leading to a reduction in short-term bond investments.

The balance of foreign direct investment stood at 313.5 billion dollars, down 3.7 billion dollars over the same period. Lim explained, "Although transaction factors saw a slight increase, the depreciation of the Korean won reduced the dollar-converted value of won-denominated liabilities."

Both external debt soundness and external payment capacity were assessed to have improved. The ratio of short-term external debt to reserve assets, an indicator of external debt soundness, decreased by 2.4 percentage points to 38.3% from 40.7% at the end of the previous quarter. The proportion of short-term external debt in total external liabilities, an indicator of external payment capacity, fell by 0.8 percentage points from 22.7% to 21.9% over the same period.

Lim added, "Both indicators improved as short-term external debt decreased, mainly due to lower borrowings, and reserve assets increased."