Korea's share rally cuts net assets without cutting claims

South Korea's net foreign financial assets fell to $64 billion at the end of the second quarter from $753.6 billion, chiefly reflecting a rally in Korean shares that inflated the value of equities held by non-residents rather than a deterioration in external claims and obligations.

Bank of Korea data show external financial liabilities rose $891.2 billion to $3.0202 trillion, while assets grew $201.7 billion to $3.0843 trillion. Foreigners' securities investment increased $859.3 billion, led by an $848.1 billion gain in equity securities as the KOSPI climbed 67.8 percent from 5,052.5 to 8,476.5.

The international investment position includes equity holdings and derivatives, whose valuations move with prices and exchange rates. External claims and debt exclude direct-investment equity, share and fund investments, and derivatives, tracking loans, borrowings, bonds and trade credit.

External claims rose $40.7 billion to $1.1806 trillion and external debt rose $38.4 billion to $812.8 billion. Net external claims edged up $2.3 billion to $367.8 billion, the first increase in three quarters. The finance ministry said the rise in net claims and foreign exchange reserves meant external payment capacity remained sound, although short-term debt rose $15 billion and its ratio to reserves increased to 46.5 percent from 43.3 percent.