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As enthusiasm for foreign stocks rises, so do long-term domestic risks, BOK says

Published: 05 Nov. 2025, 18:48 Updated: 05 Nov. 2025, 19:33

A Hana Bank official checks for fake dollar bills at the Jung District main branch in central Seoul on Nov. 5. [YONHAP]

The continued enthusiasm of Korea's retail investors could, paradoxically, undermine the Korean economy in the long term, the central bank warned in a report on Wednesday.

According to the Bank of Korea (BOK), Korea’s foreign financial assets stood at $2.7 trillion as of the end of June — more than seven times the level two decades ago. Net foreign assets, which subtract external liabilities from external assets, surpassed the $1 trillion mark for the first time at the end of last year.

The BOK attributed this growth to a current account surplus that led to more outbound investment and foreign reserve accumulation — a result of strong exports, modest imports and growing income from overseas assets such as interest and dividends.

As of June, Korea’s foreign financial assets accounted for 55 percent of the country’s GDP — the highest since hitting 58.8 percent at the end of last year. This means that more than half of the country's annual national income is now held abroad. As foreign markets, particularly the United States, continued to rally, Korean retail investors — often dubbed seohak ants for their investments abroad — increasingly turned to overseas stocks, fueling the rise in net foreign assets.

While the BOK acknowledged that this trend helps bolster Korea’s external financial soundness, it warned that it also “weakens the investment base of the domestic capital market, places persistent downward pressure on the won and increases exposure to global risks.” The central bank pointed to a paradoxical situation in which Korea earns money through a current account surplus, but sees capital flowing back out of the country, leading to a capital account deficit. This weakens domestic investment and contributes to a depreciating currency.

The central bank also noted that domestic investment demand is weakening amid an aging population, and that public pension funds and institutions are expanding their investments abroad — meaning net foreign assets are likely to keep growing.

Dollar bills are seen stacked up at a Hana Bank branch in central Seoul on Oct. 13. [YONHAP]

Foreign assets were once mainly held in foreign reserves and bank investments, but more recently have shifted to private investing with pension funds and individual trading. According to the Korea Center for International Finance, Korean retail investors made a net purchase of $6.81 billion in overseas stocks in October — the highest monthly total since data collection began in 2011.

“The ratio of Korea’s net foreign assets is lower than that of traditional net creditor countries like Japan and Norway, but higher than net debtor countries such as the United States,” said Lee Hee-eun, the head of the BOK’s Overseas Investment Analysis Team and author of the report.

Such capital outflows could also weigh on long-term growth. According to the Korea Development Institute (KDI), the country's net investment income — income earned from foreign investments minus what is paid to foreign investors in Korea — rose from 0.7 percent of the GDP between 2000 and 2008 to 4.1 percent from 2015 to 2024, a nearly sixfold increase. The KDI attributed this to declining domestic productivity. As domestic investment lags while overseas investment surges, the vitality of the Korean economy could weaken.

The KDI also estimated that for every 0.1 percentage point drop in productivity, capital investment in Korea falls by 0.05 percentage points. In other words, lower productivity not only directly reduces the GDP but also indirectly drags it down by curbing capital input.

Export cargo is piled up at the Pyeongtaek Port in Gyeonggi on Oct. 16. [YONHAP]

Japan experienced a similar trajectory before. Its net foreign assets reached 55 percent of its GDP in 2009 and hit 83 percent by the end of 2024. But the country began to turn things around in 2023 with the launch of its own “value-up program.” Companies with price-to-book ratios below 1 were required to disclose plans to improve capital efficiency, accompanied by measures such as increasing dividends, buying back shares and enhancing corporate governance. Public pension funds exercised shareholder rights to push for change. The result was a stock market rally that hit a 35-year high and a moderation in the growth of net foreign assets.

“Like Japan’s value-up initiative, we need to improve the investment environment in the domestic stock market, push for inclusion in the MSCI Developed Market Index and encourage more domestic investment by the National Pension Service,” BOK's Lee said.

Kim Jun-hyong, a KDI research fellow, added, “We must foster an environment where promising startups can enter and unviable firms can exit, while building a more flexible labor market to boost productivity.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [[email protected]]