On-Offshore Investment
The Bank of Korea announced on Dec. 7 that the balance of foreign investment in Korea decreased by US$60.4 billion to US$946.3 billion between the end of June and the end of September this year. The decrement was a four-year high.
The central bank explained that such a decrease can be attributable to non-trading factors such as the bearish domestic stock market and devaluation of the domestic currency. Approximately US$50 billion out of the US$60.4 billion is estimated to be related to such factors. In the third quarter of this year, the Korea Composite Stock Price Index (KOSPI) fell 5.4 percent and the Korean won lost 5.9 percent of its value vis-à-vis the U.S. dollar from a quarter ago.
In that period, 57 percent of the foreign investment in Korea was in securities and bonds and the amount of the KRW-denominated assets purchased by foreigners decreased by more than US$10 billion, implying that an outflow of funds might occur sooner or later with an interest rate hike by the Fed around the corner.
In the meantime, Korea’s overseas investment showed a slight decrease of US$2.3 billion quarter on quarter to reach US$1.138 billion as of the end of the third quarter. The net international investment position that is equivalent to the difference between the two amounts added up to US$191.7 billion, increasing by US$58 billion from a quarter earlier to reach a new high. Under the circumstances, Korea’s external debt declined by US$14.6 billion to US$409.1 billion during the same period, when its short-term debt-to-reserves ratio edged down from 33.4 percent to 32.5 percent.