In a striking turn for global capital flows, Korea saw institutional holdings of foreign securities rise to $507. 83 billion by end-December 2025, while overseas financial assets climbed to a record $2. 88 trillion. Korea’s surge combined valuation gains from buoyant equity markets with sizeable net investment outflows that altered the country’s balance of payments and concentrated attention on major public investors.
Korea institutional foreign securities and record overseas assets
Data from the central bank show the outstanding value of foreign securities held by domestic institutions reached $507. 83 billion at end-December, an increase of 20. 7 percent—$87. 24 billion—year on year. Overseas financial assets for the economy as a whole hit a record $2. 88 trillion in 2025, underscoring a broader expansion of external asset positions.
Foreign securities, as defined in the datasets, comprise foreign stocks, foreign bonds and “Korean paper, ” the latter denoting foreign currency–denominated securities issued abroad by the government, banks or companies. By asset type, institutional foreign stock holdings rose by $66. 04 billion over the year, while foreign bond holdings increased by $2. 22 billion. A BOK official noted that valuation gains expanded amid rising share prices in the United States and other major markets, and that net investment—particularly by asset management firms—also grew significantly. The same official linked higher overseas bond balances to U. S. rate cuts and a decline in U. S. Treasury yields.
Korea’s balance-of-payments dynamics and the role of large public investors
The current account picture shifted in 2025: the country posted a record current account surplus of $120 billion, yet that surplus was offset by large equity outflows rather than debt outflows. The net capital flow that neutralized the surplus consisted principally of domestic purchases of foreign equities and some foreign selling of local equities.
A single funded government pension fund generated a $40 billion equity outflow—more than 2 percent of GDP—highlighting the outsized market impact of large institutional reallocations. That pension fund’s foreign portfolio composition has moved to roughly 60 percent of total assets, and its hedging capacity can extend to 15 percent of the foreign portfolio when tactical hedging is included. Hedge behavior mattered through the year: hedges that were in place earlier in 2025 ran off toward year-end, and later tactical hedging and resumed hedging with the central bank helped stabilize market strains associated with currency moves.
The central bank itself took modest action in 2025, selling a portion of its foreign exchange holdings over the year in an effort to support the currency. Market-level pressures were visible when the domestic currency briefly approached the 1, 500-per-dollar region, concentrating policy attention and prompting renewed hedging activity by large institutional investors toward the end of the year.
Implications and broader consequences
The concentration of outflows in equity markets creates a distinct balance-of-payments profile: external imbalances offset by portfolio reallocations rather than cross-border debt. That pattern has two immediate consequences. First, valuation shifts in global equities translate rapidly into changes in domestic external assets and liabilities. Second, the behavior of the largest institutional players—whose allocations and hedge strategies can swing annual net flows by tens of billions of dollars—now figures centrally in macrofinancial stability discussions.
Policy coordination issues also emerged. Commitments tied to major trade arrangements and limits on certain flows raised central-bank concerns about the interaction between investment plans and the country’s external position. Adjustments in institutional allocation policies, including reduced targets for foreign equities and increased scope to hold domestic equities, are expected to materially reduce net outflows in the near term.
Expert voices in the record note both market mechanics and policy responses: the expansion in overseas assets reflects a mix of valuation gains and active net purchases, while the timing and extent of hedge use by large funds affected currency and forward positions throughout the year.
Looking ahead, key questions remain about how persistent portfolio shifts and institutional policy changes will feed back into exchange-rate dynamics and the composition of overseas financial assets. Will Korea sustain a strategy that tempers equity outflows and rebalances hedging practices to reduce volatility, or will large institutional allocations continue to reshape the country’s external footprint in unpredictable ways?
