South Korea expands exchange-rate defense, curbing overseas investment marketing

Pullback in promotion of overseas investment products
Criticism grows over rising costs for financial firms and investors
Insufficient to halt persistent cross-border capital flows

As the won–dollar exchange rate continues to fluctuate near recent highs, South Korean financial authorities are steadily expanding their efforts to defend the currency, with the impact now reaching frontline business practices in the financial sector. Against the backdrop of concerns that rising overseas equity investment is fueling instability in the foreign-exchange market, regulators have formally urged all financial institutions to refrain from marketing overseas investment products to retail investors.

Focus shifts to encouraging investment in South Korean equities

According to the local financial investment industry on the 19th (local time), South Korea’s financial sector has recently shown a clear trend toward scaling back marketing related to overseas investments. Meritz Securities has ended its “Super365” campaign, which had offered free currency exchange fees to promote overseas stock trading, while Hana Asset Management has reportedly put on hold plans to cut management fees for U.S.-focused exchange-traded funds it had been reviewing. By contrast, marketing tied to South Korean equities has been strengthened. Kiwoom Securities began offering cash incentives for non-face-to-face account openings starting on the 8th, and Woori Investment & Securities is currently running a promotion waiving online trading fees for South Korean stocks.

Behind this shift lies the financial authorities’ determination to prioritize foreign-exchange market stability amid a prolonged period of elevated exchange rates. At a market conditions review meeting on the 13th, Lee Chang-jin, head of South Korea’s Financial Supervisory Service, said that “despite recent gains in the KOSPI, vague expectations of rising overseas asset values have driven increased overseas stock investment and sales of foreign-currency financial products,” adding that “investor protection should be strengthened in advance by raising awareness of potential losses from exchange-rate volatility.” On the same day, the won–dollar exchange rate in the Seoul foreign-exchange market rose by 5.3 won from the previous session to 1,473.7 won.

The Financial Supervisory Service also made clear that overseas investment marketing would be included in future supervisory oversight. Lee said he plans to meet directly with executives at financial institutions that engage in excessive marketing of overseas stocks and foreign-currency products, noting that “we will closely monitor foreign-exchange market conditions and the sales practices of financial firms, and if necessary, coordinate with relevant authorities to step up our response.” He added that measures such as Korean market return accounts (RIA) and the early commercialization of currency-hedged products for retail investors would be pursued in parallel to encourage the repatriation of capital into South Korea’s capital markets.

As regulators have begun to explicitly flag aggressive marketing of overseas investments as problematic, banks have also moved to effectively suspend new currency-exchange promotions and external advertising related to overseas investment, even while maintaining existing preferential exchange rates and services. This preemptive pullback has taken shape despite the absence of formal written guidelines. One asset management industry official said, “The government is not banning overseas investment itself, but with the foreign-exchange management stance tightening, continuing aggressive overseas investment marketing has become a burden,” adding that “the entire industry is taking a step back and watching how the situation develops.”

Diverging views among policymakers

Despite these regulatory efforts, the actual flow of South Korean retail capital overseas has shown little sign of slowing. Overseas equity investment by so-called ‘Seohak ants’—South Korean retail investors in foreign markets—has accelerated again since the start of the year. According to the Korea Securities Depository, South Korean investors recorded net purchases of 2.368 billion dollars in U.S. stocks between the 1st and the 12th of this year. The figures confirm that even as overseas investment marketing has been curtailed across the financial sector, retail capital continues to flow abroad, underscoring the limited ability of marketing controls to suppress underlying investment demand.

Remarks by Bank of Korea Governor Lee Chang-yong during this period prompted mixed interpretations. At a Monetary Policy Board press briefing on the 15th, Lee said that “as South Korea is a net external creditor, even if the won–dollar exchange rate rises to the 1,500 won level, a financial crisis like those of the past is unlikely,” drawing a line between current exchange-rate levels and systemic financial risk. He added, “This is not a crisis of lacking dollars, but rather a situation where dollars exist but are not being sold due to expectations of further exchange-rate rises.” While the comments emphasized macroeconomic fundamentals, they also drew some criticism among investors sensitive to foreign-exchange market dynamics.

Across the financial industry, however, Lee’s remarks were widely interpreted as revealing a divergence in perspective among policymakers. While the government and financial regulators have focused on defending the exchange rate and restraining capital outflows, the central bank has taken a more neutral stance grounded in South Korea’s foreign-reserve capacity and external financial soundness. In practice, retail investors’ net overseas stock purchases showed no clear deceleration following the remarks, as expectations around foreign asset prices and exchange-rate direction continued to outweigh caution over headline exchange-rate levels.

Criticism has also emerged that the authorities’ approach to suppressing overseas investment marketing primarily constrains financial institutions’ business activity without materially altering investor behavior. As fee discounts, exchange-rate incentives, and promotional events are withdrawn, financial firms absorb higher costs and lose customer acquisition tools, while retail investors’ demand for overseas assets remains intact—resulting in higher transaction costs and reduced accessibility rather than reduced capital outflows. As a result, critics argue that while the policy goal of exchange-rate defense remains unmet, both financial institutions and individual investors are left bearing opportunity costs.

Clouded prospects for South Korean domestic investment alternatives

Underlying these dynamics are structural limitations in South Korea’s domestic capital markets that cannot be resolved simply by discouraging overseas investment. Since first allowing individual overseas stock investment in 1993 as part of efforts to ease pressure on the won and encourage capital outflows, South Korea has progressively liberalized capital movement—abolishing investment limits in 1996 and removing all remaining restrictions by 2006. Through this process of financial liberalization, individual overseas investment has become a permanent and institutionalized channel of cross-border capital movement rather than a temporary trend or speculative phenomenon. Once opened, such capital channels are difficult to reverse through exchange-rate cycles or administrative pressure alone.

The data reflect this shift clearly. According to the Bank of Korea’s international investment position statistics, South Korea’s external financial assets reached a record 2.7976 trillion dollars as of the end of the third quarter last year. Of this total, residents’ portfolio investment holdings stood at 1.214 trillion dollars, rising by 89.0 billion dollars in a single quarter to set a new high. This marked South Korea’s fourth consecutive quarter maintaining net external financial assets exceeding 1 trillion dollars. Direct investment also continued to rise, reaching 813.5 billion dollars, driven largely by growth in secondary battery-related industries.

During the same period, 49 of the top 50 overseas holdings by South Korean retail investors were U.S. stocks or exchange-traded funds. Investments in Tesla, totaling 28.3 billion dollars, and Nvidia, at 17.2 billion dollars, accounted for 28.5% of total U.S. equity investment. Leveraged ETFs also featured prominently, underscoring a clear tolerance for short-term volatility in pursuit of higher returns. Over the past five years, S&P 500-linked ETFs delivered returns of 86%, while Nvidia surged 1,249%, compared with a roughly 42% rise in South Korea’s KOSPI over the same period. When dividend policies, share buybacks, and exchange-rate effects are factored in, the perceived return gap widens further.

In this environment, overseas investment flows are increasingly viewed not as something to be blocked, but as the outcome of established asset allocation decisions. This perspective also helps explain why the central bank has adopted a calmer assessment based on foreign-reserve adequacy and external financial strength. Separate from short-term exchange-rate volatility management, policymakers widely recognize that without improvements in the growth potential, industrial composition, and shareholder return structures of South Korea’s domestic markets, it will be difficult to reverse capital flows through administrative measures alone. Ultimately, the surge in overseas investment reflects less a failure of policy signaling than a broader judgment on whether South Korea’s domestic markets offer an environment capable of retaining long-term capital.