As AI-fueled volatility draws record foreign participation in Seoul's equity market, demand for currency hedging has pushed daily foreign-exchange turnover to an all-time high, a trend highlighted Friday when unprecedented overseas buying of Korean shares generated heavy FX trading but only a muted immediate rally in the won.
The average daily value of spot and foreign-exchange derivatives transactions reached a record $121.44 billion in the April-June quarter, up 18.3 percent from $102.65 billion in the previous quarter, according to the Bank of Korea.
The figure surpassed the previous record set only three months earlier and marked the highest level since the central bank began compiling the quarterly data in 2008.
"The increase reflected a rise in foreign investors' purchases and sales of Korean-listed stocks and bonds, along with increased demand to hedge against fluctuations in the won," a BOK official said.
Friday's trading provided a vivid example of that relationship.
Foreign investors poured more than 7 trillion won into KOSPI shares — the largest single-day net purchase on record — while buying another 1.7 trillion won on the KOSDAQ as Samsung Electronics and SK hynix staged historic rallies after stronger-than-expected earnings from Microsoft and Amazon revived confidence in global AI infrastructure spending.
Despite the record equity inflows, the won's gains were comparatively restrained. As of 3:30 p.m., the dollar traded at 1,425.9 won, strengthening from around 1,434 won earlier in the session but failing to mirror the magnitude of the stock-market surge.
Foreign purchases of equities do not immediately translate into demand for won because stock trades settle several days after execution, delaying the accompanying currency conversion, a BOK official said.
Dealers also cited importer demand for dollars as the won strengthened earlier in the day, while a modest weakening of the Japanese yen after the Bank of Japan kept interest rates unchanged and a rebound in the U.S. dollar index toward the 100 level also weighed on the Korean currency.
The BOK's data suggest that heightened stock-market volatility is increasingly spilling over into currency markets through greater hedging activity.
Spot transactions led the increase, climbing 27.7 percent from the previous quarter to a daily average of $54.11 billion.
Won-dollar spot trading rose 31.4 percent to $43.74 billion, accounting for most of the increase.
Trading involving non-residents jumped 41.1 percent to $17.76 billion, significantly outpacing a 23.6 percent increase in interbank transactions and an 18.3 percent rise in trades with domestic customers.
Foreign-exchange derivatives also remained active, with daily turnover rising 11.7 percent to $67.32 billion.
Forward transactions climbed 21.6 percent to $23.03 billion, led by non-deliverable forwards (NDFs), whose turnover increased 21.2 percent to $18.84 billion.
The rise in NDF trading indicates stronger demand among offshore investors and financial institutions to hedge or adjust exposure to the Korean won without exchanging the underlying currencies at settlement.
Foreign-exchange swaps, the largest segment of Korea's derivatives market, increased 7.5 percent to $42.03 billion, while currency swaps edged down 2.1 percent to $1.89 billion.
By institution, turnover at domestic banks rose 20.1 percent to $55.51 billion a day, while Korean branches of foreign banks handled $65.93 billion, up 16.8 percent from the previous quarter.
The central bank noted that the figures measure the combined value of purchases and sales rather than net capital flows, meaning the record reflects heightened trading activity and hedging demand rather than the direction of cross-border capital movement.
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