Residents Overseas Investments Exceed Foreign Investments in Korea for the First Time
On February 27, 2023, the Bank of Korea announced a landmark achievement: South Korea's net external financial assets have surpassed the $1 trillion mark for the first time, reaching $1.1023 trillion. This milestone places Korea among a select group of countries, including Japan, Germany, China, Hong Kong, Norway, and Canada, which also boast net external financial assets exceeding $1 trillion.
This progress marks a substantial increase of $292 billion from the previous year's end, when the figure stood at $810.3 billion—the largest increase recorded to date. The rise in net external financial assets is attributed to various factors, primarily the significant growth of external financial assets, which increased by $166.3 billion to $2.498 trillion. Noteworthy is the surge of residents' overseas securities investments, which rose by $136.7 billion to achieve $994.3 billion.
Significantly, for the first time, the balance of these overseas investments has outstripped foreign investments within Korea, which totaled $837.8 billion. This shift reflects broader trends wherein both institutional and individual investors are actively seeking greater returns and diversification through investments in international markets. The depreciation of the South Korean won by 10.2% against the U.S. dollar over the past year has also impacted the valuation of these assets, highlighting the interplay between currency fluctuations and international investment.
Despite the challenges posed by currency depreciation, Korea's external financial liabilities, which reflect foreign investments within the country, decreased by $125.7 billion, bringing the total to $1.3958 trillion. Meanwhile, external debt experienced a slight reduction of $2.5 billion, bringing it down to $670 billion, even as short-term debt increased by $6.2 billion and long-term debt saw a decrease of $8.7 billion.
The Bank of Korea underscored the significance of these developments, with one representative emphasizing, "Not only institutional investors but also individual investors are increasing their overseas investment proportion," reflecting growing confidence among Koreans toward international markets. This achievement is not merely numeric; it signifies Korea's remarkable economic transformation and adaptability.
The pathway to this achievement is rooted in Korea's post-war history, having evolved from a war-torn nation in the 1950s to becoming today’s global economic powerhouse. The focus on export-led growth has been instrumental, alongside technological advancements and the process of industrialization, all of which have contributed to reaching this notable milestone. With major stock markets like the Dow Jones and Nasdaq performing well, these have directly boosted Korea's external financial assets.
The ramifications of this achievement for economic stability and resilience are substantial. The surplus seen in net external financial assets acts as a buffer during economic crises, providing necessary liquidity and contributing to currency stabilization. This development not only highlights Korea's financial health but also enhances its global standing, indicating its place among countries with substantial net external financial assets.
Looking toward the future, it will be imperative for Korea to maintain its current momentum. Navigational challenges lie ahead within the global economic framework, requiring strategic measures to sustain its position and continue thriving amid global economic shifts.