Domestic individual investors in South Korea are significantly increasing their investments in US stocks, despite warnings from authorities about foreign exchange volatility.
In South Korea, investments in US stocks by domestic individual investors have surged sharply, with net purchases in February rising by 57% compared to January. As of the 13th of this month, domestic investors have purchased approximately $37.3 billion worth of US stocks, averaging $3.73 billion daily. This increase comes despite high exchange rates, where individuals are willingly exchanging their currency to acquire US stocks, driven by the potential for higher returns compared to the local market.
Data from the Bank of Korea indicates that last year, the net amount of overseas stock purchases by residents reached $114.3 billion, showing a significant year-on-year increase of $72.2 billion. More than 80% of these investments were in US stocks, with individual investments totaling about $31.4 billion. Institutions, such as asset management firms and pension funds, also contributed significantly, reflecting a robust interest in foreign markets despite local economic concerns related to currency fluctuations.
From a foreign exchange supply-demand perspective, the large scale of overseas stock investments has helped to offset the positive effects of a trade surplus that typically strengthens the won. In fact, last year's overseas stock investments accounted for 93% of the record-high current account surplus. However, authorities are evaluating the implications of these capital outflows, especially as it dampens the expected currency appreciation from the current account surplus, presenting a challenge for the local economy moving forward.
