Foreign Capital Inflows to South Korea Surge to Record High in Q2, Fueled by Stock Market Rally

Data released by the Bank of Korea on Thursday revealed that foreign investors' financial holdings in South Korea recorded their largest quarterly increase on record during the second quarter, reaching an all-time high, driven by a robust rally in the local stock market.

Preliminary figures from the central bank show that the total outstanding foreign investment in the country stood at $3.02 trillion as of the end of June, representing a surge of $891.2 billion compared to three months earlier.

This marks the first time the figure has surpassed the $3 trillion threshold, while also setting a new record for the largest quarter-on-quarter increase since the central bank began compiling the data in 1994.

Non-resident securities investment climbed by $859.3 billion to reach $2.33 trillion, while direct investment edged up by $0.4 billion to $321.1 billion.

The Bank of Korea attributed the surge, stating: "The significant rise in domestic stock prices has boosted the valuation of Korean equities held by foreign investors."

The country's benchmark Korea Composite Stock Price Index (KOSPI) skyrocketed by 67.8% during the second quarter.

In parallel, South Korea's external financial assets, representing overseas investments by local residents, increased by $201.7 billion to a record $3.08 trillion as of the end of June.

This indicator also posted its largest quarterly increase in history.

Within external financial assets, residents' securities investment rose by $142.7 billion quarter-on-quarter to $1.38 trillion by the end of June, propelled by gains in the US stock market. Residents' direct investment grew by $20.8 billion from three months earlier, reaching $872.5 billion.

The central bank added that the Dow Jones Industrial Average rose 12.9% during the quarter, while the tech-heavy Nasdaq Composite Index surged 21.4%.

As the increase in external financial liabilities far outpaced the growth in external financial assets, South Korea's net international investment position contracted by $89.5 billion year-on-year to $64 billion, marking the lowest level since the third quarter of 2014.