South Korea’s foreign direct investment (FDI) fell by approximately 30% in the first quarter of this year as South Korean companies refrained from undertaking M&As amid negative investor sentiment.
The Ministry of Strategy & Finance announced on June 12 that remittances from South Korea for FDI purposes totaled US$9.61 billion in the first three months of this year, down 28.3% from a year ago.
This has to do with large-scale investments made last year. For example, Samsung Electronics acquired Harman International Industries for US$8.6 billion in March 2017, setting a new record in terms of contract amount. In addition, Netmarble Games acquired Kabam's Vancouver studio for approximately one trillion won.
"We believe the big drop year on year is due to the base effect from Samsung's acquision of Harman," an official of the ministry commented. "Excluding the base effect, the trend is upwards."
This year's FDI by sector breaks down into finance and insurance (33.5%), manufacturing (24.8%), construction (7.9%), and science, expertise and technology (4.6%). By region, Asia accounted for 38%, followed by Europe (22.9%), North America (20.6%), and Central and South America (13.8%). By country, the US topped with 19.3%, followed by Vietnam (11.2%), England (10.5%), Hong Kong (7.9%) Cayman Island (7.4%) and China (6.9%).
This year, South Korean companies are doing less M&As. According to Bloomberg, the number of cross-border M&As led by South Korean companies totaled 43, worth US$1.4 billion, in the first quarter of this year. In the same period of the previous year, the figures were 50 and US$18.7 billion.
“Corporate investor sentiment has yet to be recovered and there are negative external factors, including a trade war between the United States and China and US interest rate hikes,” the Korea Economic Research Institute explained, adding, “The government needs to improve investor sentiment and enhance policy stability.”