Overseas investing reshaping Korea's FX market: BOK

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SEOUL, January 14 (AJP) - A sharp rise in overseas securities investment by South Koreans led to nearly $20 billion in net foreign-exchange outflows last year, the Bank of Korea said in a report Wednesday, underscoring why the won weakened despite large current-account surpluses.

Net foreign-currency outflows linked to residents’ overseas securities purchases and overseas investment by pension funds totaled $19.6 billion from January through October last year.

The findings were presented by Kwon Yong-oh, head of the Bank of Korea’s international finance research team, at a policy symposium in Seoul.

Kwon said exchange-rate movements since the global financial crisis have been closely tied to shifts in foreign-exchange supply and demand. Prior to the 2020s, current-account surpluses typically exceeded demand created by residents’ overseas investment, resulting in an excess supply of foreign currency and a stronger won.

That dynamic has since changed, he said. Despite sustained current-account surpluses since 2024, the won has weakened rapidly. Kwon suggested that export-related dollar inflows may not be fully entering the market as some exporters delay currency conversion, while growing overseas investment by residents has tightened dollar supply and demand.

From January through October last year, South Korea’s current-account surplus generated $89.6 billion in net inflows, while foreign investors’ purchases of domestic securities added $31.9 billion, according to the central bank.

Those inflows were more than offset by a surge in residents’ overseas securities investment and overseas investment by the National Pension Service, resulting in a net foreign-exchange outflow of $19.6 billion, or roughly 29 trillion won at current exchange rates.

The outflow marked a sharp increase from the same period a year earlier, when net outflows totaled about $500 million. Residents’ overseas securities investment jumped to $117.1 billion from $71.0 billion a year earlier.

“Residents’ behavior is driving the shift in foreign-exchange supply and demand,” Kwon said.

Kwon also pointed to a widening growth gap between South Korea and the U.S., as well as differences in expected stock-market returns, as contributing factors to the won’s recent weakness.

Addressing claims that excessive liquidity expansion has weakened the won, Kwon said a long-term channel linking money-supply growth to higher inflation and currency depreciation is theoretically possible, but noted that empirical evidence remains inconclusive.
Jang Suna 기자 sunrise@ajunews.com

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