Why overseas investment gains don't help the won

Koreans are earning more money from overseas investments, but much of it is staying abroad rather than returning home.

The trend could weaken the won by limiting the supply of dollars in the domestic foreign-exchange market, according to the Bank of Korea (BOK).

"While increased overseas investment contributes to the accumulation of foreign assets and investment income over the long term, it can put downward pressure on the won in the short term by increasing demand for foreign currency,” said the BOK in a report on Thursday.

Korea's overseas securities investment reached $140.3 billion last year, more than double the $67 billion recorded a year earlier.

The report saw Korea as increasingly following a path resembling Japan's.

Although Japan runs a deficit in trade of goods, its current account remains supported by a surplus in primary income such as interest and dividends earned from overseas investments. However, much of that income is retained or reinvested abroad rather than brought back to Japan.

Korea appears to be entering a similar phase. As of the end of 2025, Korea's net international investment position stood at $904.2 billion, equivalent to 48 percent of GDP.

By comparison, Japan's net foreign asset position at the end of 1996 was $891 billion and its net foreign assets reached 48 percent of its GDP by the end of 2007.

The two countries also share other similarities, such as overseas investment returns exceeding domestic investment returns since the mid-2000s and net foreign assets turning positive after 2014.

The challenge is that greater overseas investment increases demand for dollars, which can weaken the won.

According to the BOK, when overseas investment rose about 3 percent above average levels, the won weakened by roughly 0.7 percentage point against the dollar.

Higher investment income had the opposite effect. When investment income increased by about 8 percent, the won strengthened by roughly 0.4 percentage points.

However, the benefit faded as more of that income was reinvested overseas rather than repatriated to Korea. A 1 percentage point increase in the share of earnings reinvested abroad weakened the won by about 0.4 percentage points.

"A strong semiconductor cycle is expected to generate a large trade surplus, but Korea's stock of overseas financial assets is also growing, which means overseas investment and investment income are likely to continue increasing," said Shin Sang-ho, an economist from the BOK. "Because investment income earned abroad can be reinvested locally, higher investment income does not necessarily translate into greater inflows of foreign currency into Korea.”

Germany and Taiwan have taken a different path.

Germany has had stronger incentives to bring overseas earnings back home for domestic investment, while Taiwan's higher propensity for dividend payments and remittances, combined with extensive currency hedging by institutional investors, has reduced pressure on the spot foreign exchange market.

Since 2010, the average share of overseas earnings reinvested abroad has been 28 percent in Germany and 18 percent in Taiwan, far lower figures than the 40 percent for Korea and 46 percent for Japan.

"Policies should encourage overseas subsidiaries to bring dividend income back to Korea and support stable foreign exchange hedging by institutional investors," the BOK said. "Korea should raise domestic productivity and investment returns to ease the structural incentives that encourage greater overseas investment.”

BY KIM WON [[email protected]]