South Korea to inject US$13.9 billion into sovereign fund for AI, data center investments

South Korea announced plans to inject 20 trillion won (US$13.9 billion) into its sovereign wealth fund to support strategic investments in artificial intelligence, data centres and infrastructure, marking the first time the fund will be allowed to invest in domestic assets. The move follows a historic rout in the nation's technology stocks that erased roughly US$2 trillion in market value this week.

The government said on Friday (Jul 31) that it will create a new account within the Korea Investment Corporation (KIC), funded initially with a minimum of 20 trillion won drawn from sources including equity contributions from public institutions such as policy banks. The decision is driven by the need to "act proactively" on growing global investment interest in Korea, fuelled by the nation's core competitiveness in building an AI ecosystem, the government said in a statement.

While the statement did not directly link the plan to the ongoing market turmoil, the announcement comes after the Kospi index tumbled 34 per cent in July, putting the benchmark on track for its worst month on record. Investors have been selling the nation's two giant chipmakers amid growing doubts over the massive capital expenditure underpinning the AI sector. The government has also rolled out a series of measures in recent weeks to stabilise the stock market.

The new account will give the fund a mandate to invest in local assets, moving beyond its traditional foreign asset portfolio. The government said an anchor investor is needed to draw global capital from foreign sovereign wealth funds and asset managers. It added that the account will support the growth of strategic industries while generating revenue for future generations, serving as a buffer for national economic security, foreign exchange and asset markets.

The government aims to submit a revision of the Korea Investment Corporation Act to Parliament in August to enable the new account, and plans to launch fund operations in 2027. Management of the new account will maintain full independence in its investment decisions, and the account will be strictly separated from KIC's existing foreign exchange reserve portfolio, the government said.

KIC managed US$232 billion in assets at the end of 2025, handling funds entrusted by the government, the Bank of Korea and public entities to manage the nation's foreign exchange reserves. The expansion of its mandate reflects a broader shift in South Korea's approach to leveraging state capital for strategic industries, as the government seeks to stabilise markets and position the country as a hub for AI infrastructure investment.