South Korea's external financial liabilities posted their fourth-largest quarterly increase on record in the first quarter, driven by a surge in domestic stock prices. External financial liabilities, which represent assets held by foreign investors in Korean stocks and bonds, are counted as "external debt" owed abroad from Korea's perspective. The increase this time stemmed not from foreigners' aggressive net buying of Korean stocks, but from a sharp rise in the valuation of their existing holdings, which inflated the on-paper liabilities.
According to the "Q1 2026 International Investment Position (preliminary)" released by the Bank of Korea on Thursday, external financial liabilities stood at $2.129 trillion at the end of the first quarter, up $147.1 billion from the end of the previous quarter. It marked the fourth-largest increase on record. External financial assets, by contrast, edged up just $15 billion to $2.8826 trillion. As a result, net external financial assets (external financial assets minus external financial liabilities) fell by $132.1 billion from the previous quarter to $753.6 billion.
Net external financial assets surpassed $1 trillion for the first time in 2024 and held above that level for some time, but slipped back below the threshold late last year and shrank further to the $700 billion range in the first quarter.
The latest rise in liabilities was driven more by non-transaction factors tied to stock price and exchange rate movements than by transaction factors that reflect actual fund flows. In fact, transaction factors decreased by $14.3 billion, while non-transaction factors surged by $161.4 billion. In effect, on-paper liabilities ballooned without any substantial inflow of capital.
In particular, the KOSPI jumped 19.9% in the first quarter, climbing from 4,214.2 to 5,052.5, sharply pushing up the valuation of Korean stocks held by foreign investors. The won, meanwhile, weakened 5.2% against the dollar, the steepest decline among major currencies.
Meanwhile, Korea's net external financial assets also slipped one notch in the global rankings. As of the end of 2025, Korea's net external financial assets stood at $885.7 billion, down more than $200 billion from a year earlier. The country's global ranking accordingly fell to 9th from 8th, with Singapore overtaking Korea.
