Global financial firms are turning to South Korea while adopting a cautious stance toward China and India.

Shift in Capital Flows: South Korea Rises, China and India Cool Down

The expansion footprint of global financial firms across Asia is undergoing a significant reshaping. According to an industry survey jointly released by the Asia Securities Industry & Financial Markets Association (ASIFMA) and KPMG, South Korea has become the most popular expansion destination for international financial institutions, while China and India face a more cautious approach to capital allocation. This shift reflects deep-seated changes in geopolitics, regulatory environments, and the regional competitive landscape.

The survey covered 34 global financial firms, with about two-thirds indicating plans to expand their Asia-Pacific operations over the next three years. Notably, mentions of South Korea as an expansion destination surged from 21% a year ago to approximately 50%, a marked increase. ASIFMA CEO Peter Stein noted that South Korea has historically been undervalued, but market sentiment is now extremely optimistic, extending beyond the equity market. "Bond market activity is also expected to increase, driven by the government's roadmap to promote inclusion in the WGBI (World Government Bond Index)."

In contrast, China and India, Asia's two largest markets, are facing a more complex capital environment. The survey shows that interest in expanding into China has stabilized at around 40%, below previous peaks. Respondents expressed concerns about capital controls, data rules, and geopolitical risks. ASIFMA stated that the attractiveness of mainland China as a destination for business "onshoring" continues to decline, with firms facing increased uncertainty regarding long-term China exposure.

Although India's business environment ranking rose from eighth to fifth, regulatory conditions have actually tightened. Firms continue to encounter difficulties with Know Your Customer (KYC) standards, non-deliverable forward (NDF) restrictions, and other issues. ASIFMA indicated that while authorities intend to streamline processes, operational frictions persist. The willingness to expand in India has receded from earlier highs, reflecting a cautious assessment of local regulatory complexity.

Intensified Regional Competition: Singapore and Hong Kong Hold Their Ground

The competitive landscape within Asia-Pacific is intensifying. Five years ago, China was the primary destination for foreign capital; now, more Asian countries are vying for a share of global primary capital flows. Singapore continues to attract interest due to its multipolar geopolitical positioning—aligning with neither China, the U.S., nor any single ASEAN bloc. Markets such as Hong Kong, Japan, and Taiwan are also attracting expansion interest from about half of the surveyed firms.

This trend intertwines with global supply chain restructuring and the wave of ESG investment. South Korea's industrial advantages in semiconductors, new energy, and other fields, coupled with its capital market opening measures, make it a key pivot for multinational financial institutions in their Asia-Pacific布局. Meanwhile, despite their vast market sizes, China and India require foreign investors to weigh growth potential against increasingly complex operating environments.

Outlook: Cautious Diversification Becomes the Main ThemeOverall, the strategy of global financial companies in Asia-Pacific is shifting from "broad-based expansion" to "deepening presence in existing markets and broadening product lines." Surveys show that companies are no longer blindly chasing growth stories in every market, but are instead placing greater emphasis on predictable policy environments and operational efficiency. South Korea's policy clarity, the internationalization of its capital markets, and its relatively stable geopolitical position have become core factors attracting capital.

For China, foreign capital's wait-and-see sentiment may persist until regulations on capital flows and data security become clearer. India, on the other hand, needs to make substantial progress in simplifying regulatory processes before it can reignite the expansion enthusiasm of international financial institutions.

This capital shift reflects not only short-term sentiment fluctuations but also marks a new phase in the competition among Asian financial centers: moving from scale-driven to a contest of institutional quality and ease of market access. For policymakers, striking a balance between attracting foreign capital and maintaining financial security will determine their long-term standing in the global capital landscape.