Korea’s Net External Financial Assets Hit 12-Year Low as KOSPI Surges
Net external financial assets, which represent the value of assets held overseas by South Korean residents minus foreign investments in Korea, fell to their lowest level in 12 years. The decline came as a sharp rally in Korean stocks drove an unusually large increase in the value of equities held by
South Korean net external financial assets dropped to a 12-year low in June, falling 91.5% from the previous quarter. This decline was driven by a sharp surge in the value of equities held by foreign investors as Korean stocks rallied. The International Investment Position data released by the Bank of Korea showed net external financial assets at $64 billion, down $689.5 billion from June 2022.
This marked the lowest level since 2014, when Korean net external assets first turned positive. The decrease was not due to deteriorating overseas assets but rather an increase in foreign assets in Korea. Korea's external financial assets rose to a record $3.08 trillion, mainly due to continued stock investments by Korean residents and a $146.2 billion increase in equity securities value.
Meanwhile, external financial liabilities surged $891.2 billion to $3.02 trillion. Although foreign investors sold Korean stocks, the KOSPI surged 67.8%, significantly increasing the value of their holdings. The data showed transaction factors would have increased net external financial assets by $98.4 billion, but valuation changes due to the stock market rally reduced this by $787.9 billion.
The Bank of Korea stated this decline reflected improved corporate performance, not external financial weakness. Korea's net external debt position improved slightly, with net external debt claims at $367.8 billion, up $2.3 billion from the previous quarter.
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