A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 6,257.45 points on Aug. 3., down 338 points, or 5.12 percent, from the previous trading session.YONHAP
The won and the Kospi are increasingly moving independently of each other, bucking convention as the currency strengthens while the bourse tanks.
The won gained 125.4 won (9 cents) against the dollar over the past month, trading at 1,424 at the end of July after closing at 1,549.4 at the end of June, according to the Bank of Korea on Monday. It marked the won’s largest monthly gain since March 2009, during the global financial crisis.
The Kospi, meanwhile, plunged 22 percent over the same period. On Tuesday, when the index closed nearly 11 percent lower than the previous session, the won still strengthened by 6 won to close at 1,462.5 to the dollar.
The Financial Times attributed the decoupling to shifts in domestic and cross-border capital flows.
Samsung Electronics and SK hynix have announced plans to invest more than $1 trillion in AI infrastructure and semiconductor plants in Korea over the next several years. The plans have raised expectations that dollar proceeds from overseas operations could flow back into Korea. SK hynix also raised $26.5 billion through a U.S. listing last month and plans to use most of the proceeds for investment at home.
The Financial Times, citing traders, estimated that about $1 billion a day was being converted into won through spot and forward foreign exchange markets between mid-July and mid-August.
NAM JUNG-HYUN
Foreign investment flows have also changed. The Financial Times said global funds had largely completed rebalancing after the Kospi’s rally in the first half of the year increased the share of Korean equities in their portfolios. Dollar outflow pressure eased as Korean investors slowed purchases of overseas stocks amid a correction in U.S. tech shares.
"The sharp drop in equities helped ease foreign selling of shares and won," Mitul Kotecha, the head of Asia foreign exchange and emerging markets macro strategy at Barclays, told the Financial Times.
Foreign investors remain net sellers, but the pace of selling has slowed.
“Foreign investors are still net sellers, but the intensity of their selling has fallen markedly from June,” said Wi Jae-hyun, a researcher at Kyobo Securities.
Experts cautioned that it was too early to treat the decoupling as a new market norm.
“With the won having strengthened considerably, demand for dollars at an appealing exchange rate could recover,” said Baek Seok-hyun, an economist at Shinhan Bank. “The message from this month’s Jackson Hole meeting will be a key factor in determining the dollar’s direction.”
BY PARK YU-MI [kim.hayoon1@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
