Net assets minus foreign exchange reserves are $300 billion… “Expect to serve as a safety plate”
Unsure of participation by domestic investors in ‘taking a loss’… Even experts are skeptical
The government is considering ways to attract private investment in overseas financial assets to Korea to calm the sharp rise in the exchange rate. Just as the government releases foreign exchange reserves when the exchange rate soars, bringing private foreign assets into Korea can be used to stabilize the foreign exchange market. The government’s calculation is that there is enough incentive for investors to return their foreign assets to Korea when considering foreign exchange gains. predicted.
According to the Ministry of Strategy and Finance on the 3rd, total external financial assets amounted to $2.12 trillion (about 2973 trillion won) as of the second quarter. Excluding foreign exchange reserves, about US$1.7 trillion (about 2380 trillion won) is external assets held by the private sector. Foreign financial assets owned by the private sector include foreign stocks and bonds purchased to acquire shares in foreign companies acquired for the purpose of management participation or capital gains, and various types of foreign assets owned by Koreans, such as other trade credits or overseas deposit assets.
The government is reviewing incentives, believing that it will help stabilize the foreign exchange market if the dollars obtained from the sale of privately held external financial assets of $1.7 trillion can be imported into Korea. There is also talk of tax incentives for investing imported overseas assets in Korea. The government believes that as the won-dollar exchange rate rises, there is a high possibility that investors who want to realize foreign exchange profit will voluntarily sell overseas assets and invest them in Korea. I think that if we give incentives to such a situation, the sale of overseas assets will not be activated. Since 2015, the government has promoted various measures to stimulate overseas investment, including tax-free overseas funds. Net external financial assets (external assets minus external liabilities) increased rapidly from minus 97.7 billion dollars at the end of 2012 to 744.1 billion dollars in the second quarter of this year. Excluding foreign exchange reserves ($436.4 billion) as of the end of August, about $300 billion in net financial assets were held by the private sector. An official from the Ministry of Strategy and Finance said, “The reason the government has increased private external assets is that external assets act as a safety net during a rapid exchange rate rise. “Because I expected you to do it,” he said.
However, it is unclear whether the private sector will sell external financial assets according to the will of the Ministry of Strategy and Finance. This is because losses in external financial assets such as overseas stocks and bonds invested by domestic investors have increased due to global tightening. Unless it is a stop-loss, it is unlikely that the company will sell its external financial assets while incurring losses. According to the National Pension Service, which invests more than a quarter of its total investment in overseas stocks, the value of fund asset valuation was 882 trillion won as of the end of June, down more than 45 trillion won in one quarter from the end of March (928 trillion won). In particular, the return on overseas stock management recorded a loss of 12.59%. Looking at the case of the National Pension Service, which is known as a ‘big hand’, it is highly likely that the situation of other institutional and individual investors will be similar or worse. A high-ranking official in the financial sector said, “Among net external assets, most of the areas that can be considered for incentives for return will be overseas stock investments. Ha Jun-kyung, a professor of economics at Hanyang University, said, “Tax benefits may have a slight effect, such as allowing the assets to be imported more quickly, but it will not be a radical measure to change the big trend.” The Ministry of Strategy and Finance said, “We are not considering a plan to grant transfer tax benefits when private companies sell overseas stocks and convert them into won.”