The share of foreign investment in the Korean stock market rose to its highest since the global financial crisis in 2008-2009 as global liquidity increased thanks to policy rate cuts and quantitative easing by major economies in the U.S. and Europe.

“Ample global liquidity revived the preference for risky assets, while foreign-exchange gains due to the Korean won’s strength and Korean firms’ stable profits attracted foreign investors,” said Lee Soo-jung, a researcher at Korea Investment and Securities.

While the sharp rise in foreign investment eases the financial strain on Korean companies, it raises the chances of financial market instabilities such as a bubble in the asset market, or a sudden drain, especially since most of the foreign money is in short-term portfolio investments. The share of foreign investors’ long-term direct investment is going down.

By Kim So-hyun (sophie@heraldcorp.com)