The value of the won has sharply increased, yet the domestic stock market is declining due to foreign investors' sell-off. Typically, a strong won is associated with an influx of foreign capital and rising stock prices, but recently, the won and stock prices have moved in opposite directions.
As of 3:30 PM on October 14, the value of the won against the U.S. dollar has risen 15.77% since the beginning of the second half of the year. The exchange rate, which was in the 1540 won range at the end of June, has recently dropped to the 1330 won range.
The primary reason for the won's strength is the dollar supply from export companies. With strong semiconductor exports, companies are selling their dollars in the market, exerting downward pressure on the exchange rate.
Conversely, the domestic stock market is experiencing significant foreign capital outflows. Since the beginning of the second half of the year, foreign investors have net sold 55.4824 trillion won in the stock market. During the same period, the KOSPI index has fallen by 28.42%.
The simultaneous occurrence of a strong won and a declining stock market contrasts sharply with past trends. Typically, when foreigners buy domestic stocks, the process of converting dollars to won increases demand for the won and brings in buying capital to the stock market, leading to a rise in both the won and the KOSPI.
In contrast, when foreigners sell stocks and withdraw their investments, stock prices fall, and demand for dollars increases, putting downward pressure on the won. However, recently, the increased dollar supply from export companies, combined with heightened foreign stock selling, has weakened this correlation.
The strength of the won also enhances the returns for existing foreign investors when converting won assets back to dollars. The potential for capital gains from rising stock prices, combined with currency gains, may incentivize selling.
Additionally, the profitability burden on export companies due to the strong won is a variable to consider. The won's appreciation reduces the dollar-denominated value of export revenues, potentially limiting profit growth. Although semiconductor exports continue to thrive in both price and volume, the pressure on performance due to the falling exchange rate may increase.
Park Sang-hyun, a researcher at iM Investment & Securities, stated, "The notable increase and volatility of the won compared to other currencies are significantly impacting foreign supply and demand."
* This article has been translated by AI.
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