Overseas Stock Investment Boom Continues... Net Foreign Financial Assets Reach All-Time High

Bank of Korea's '2024 Q2 International Investment Position'
Net External Financial Assets Reach Record High...Increase for Second Consecutive Quarter
"External Soundness at a Healthy Level"

South Korea's net external financial assets (external financial assets minus external financial liabilities), which indicate the country's external payment capacity, have set a new record for the second consecutive quarter. This is due to the continued enthusiasm of Seohak Gaemi (Korean investors in US stocks) for overseas stock investments, centered on US technology stocks. The external soundness indicators were found to be at a favorable level.

[Image source=Yonhap News]

According to the "2024 Q2 International Investment Position (Provisional)" released by the Bank of Korea on the 21st, South Korea's net external financial assets at the end of the second quarter of this year reached $858.5 billion, an increase of $27.5 billion from the end of the previous quarter ($831 billion), setting a new record. This was due to a significant increase in external financial assets, which represent domestic residents' overseas investments, and a decrease in external financial liabilities, which represent foreign investments in the domestic market.

The balance of South Korea's external financial assets has set a new record for three consecutive quarters. This is because the scale of overseas investments rose along with an increase in overseas stock prices. In the second quarter, external financial assets were recorded at $2.3952 trillion, an increase of $22.7 billion from the end of the previous quarter, mainly due to residents' overseas securities investments. Direct investments increased by $10 billion compared to the previous quarter, driven by investments in automobiles and secondary batteries, while securities investments rose by $27.9 billion due to continued overseas stock investments and the rise of the US Nasdaq.

Park Seong-gon, head of the Foreign Investment Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained the reason for the net external financial assets setting a new record for two consecutive quarters: "The significant factor is the three consecutive quarters of increase in the balance of external financial assets along with residents' overseas securities investments. The investment in US stocks notably led the direction of residents' overseas securities investments."

He added, "Despite the decline in stock prices in Europe and Japan, the US Nasdaq continued its record-breaking rally, and Korean investors' buying momentum in US technology stocks persisted."

On the other hand, external financial liabilities decreased by $4.8 billion from the end of the previous quarter to $1.5367 trillion, as non-residents' domestic direct investments declined. Direct investments, mainly equity investments, decreased by $5.3 billion compared to the previous quarter, while securities investments increased by $200 million due to an expansion in equity securities investments despite a decrease in foreign investments in debt securities.

External Soundness Indicators Favorable... "Lower than Previous Levels"

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, was 34.4%, up 0.8 percentage points from 33.6% at the end of the previous quarter. Although it slightly increased due to a decrease in foreign exchange reserves, it remained lower than the average of the previous five years' quarters (37.1%).

The proportion of short-term external debt within total external debt, which indicates external payment capacity, recorded 21.6%, up 0.4 percentage points from 21.1% at the end of the previous quarter, marking the third-lowest level ever. Although the proportion rose due to a decrease in long-term external debt, it remained lower compared to the average of the previous five years' quarters (27.5%).

Park said, "The ratios of short-term external debt and its proportion rebounded somewhat due to the base effect of a sharp decline last year, but they still remain at low levels compared to the past. Both external debt soundness and external payment capacity are showing favorable conditions."

This content was produced with the assistance of AI translation services.