Decrease of $64 billion in net external financial assets, Bank of Korea explains stock market illusion

Net external financial assets decreased to $64 billion in the second quarter of 2026. The Bank of Korea stated that the primary reason for this decline is the evaluation effect due to the rise in domestic stock prices. It is analyzed that the increase in the value of domestic stocks held by foreigners has resulted in an increase in external financial liabilities. Shin Sang-ho, a senior official at the International Department of the Bank of Korea, explained the implications of the decrease in net external financial assets on his blog, stating that net external financial assets, which first exceeded $1 trillion at the end of 2024, have dropped to $64 billion in the second quarter of 2026. The decrease compared to the previous quarter is $689.5 billion, the largest drop since 1994. The Bank of Korea judged that this decline cannot be seen as a weakening of external payment capacity. Shin explained the difference between external financial liabilities and external debts, stating that the increase in the valuation of domestic stocks held by foreigners has overshadowed the current account surplus effect. The current account surplus in the first half of the year increased net external financial assets by $191 billion, but during the same period, the KOSPI rose by 101%. The Bank of Korea emphasized that the rise in stock prices does not guarantee the direction of the index or the flow of funds in the future, and added that net external financial assets, external debts, and the ratio of short-term external debts should be considered together.