🚨 KOSPI Hits All-Time High But Korean Won Weakens
Today Korean Economic News for Beginners | 2025.10.13
0️⃣ Despite Foreign Investors' 4.2 Trillion Won Net Buying, Exchange Rate Breaks 1,430 Won - Dollar Strength is the Main Cause
📌 Stock Market Reaches Record High, But Why is the Won Getting Weaker? Traditional Relationship is Broken
💬 KOSPI broke through the 3,600 level to reach an all-time high, but the won/dollar exchange rate unexpectedly surged. Foreign investors poured about 4.2 trillion won into the Korean stock market over two days, but the Korean won is actually weakening. Traditionally, foreign buying strengthens the won, but global dollar strength and increased overseas stock investment by domestic investors are offsetting downward pressure on the exchange rate. Despite the current account surplus of $7.9 billion in August and uncertainty over $350 billion investment negotiations with the US, the rising exchange rate suggests structural changes in the market. Experts warn that the exchange rate could rise to near 1,470 won, indicating a prolonged won weakness.
1️⃣ Easy Explanation
People often think the stock market and exchange rates move together, but this rule is breaking down these days. KOSPI reached an all-time high, but the Korean won is actually losing value - a strange situation. Let me explain why this is happening.
First, let me explain the traditional rule. When foreign investors want to buy Korean stocks, they need to exchange dollars for won. For example, if an American investor wants to buy Samsung Electronics stock, they have to sell dollars and buy won. When demand for won increases like this, the value of won goes up and the exchange rate goes down. This is normal.
In fact, foreign investors bought about 4.2 trillion won worth of Korean stocks over the past two days. With this much buying, demand for won should have increased a lot and the exchange rate should have fallen, but the reality was the opposite. The won/dollar exchange rate broke through 1,430 won and actually rose.
Why did this happen? The first reason is the domestic investors' overseas investment boom. In recent years, Korean individual investors have been buying a lot of US stocks, especially big tech stocks like Tesla, Nvidia, and Apple. To buy US stocks, you need to sell won and buy dollars, which creates pressure for the won to weaken.
To put it simply, there's a "two-way flow" happening at the same time - foreigners buying won to purchase Korean stocks while Koreans buying dollars to purchase US stocks. If the two flows are similar in size or if overseas investment is bigger, the won can weaken even with foreign net buying.
The second reason is global dollar strength. The US economy is relatively stronger than other countries, and US interest rates remain high, increasing demand for dollars worldwide. This is why not just Korea, but also the Eurozone, Japan, and other developed countries' currencies are weakening against the dollar.
Third, there are structural changes. In the past, dollars earned from Korean exports continued to flow into the country, creating pressure for the won to strengthen. But recently, both companies and individuals are reinvesting their earnings overseas at a higher rate, creating a cycle where dollars that come in flow out again.
On top of this, the possibility of large-scale capital outflows like the $350 billion investment negotiation with the US is making the market nervous. Korea's foreign exchange reserves are about $400 billion, and discussions about using a significant portion for US investment are raising concerns about won weakness.
One interesting point is that the current account recorded a surplus of $7.9 billion in August. A current account surplus means foreign currency is flowing into the country, which should strengthen the won. However, even these fundamentals (basic economic strength) cannot overcome the global dollar strength trend.
Experts warn that while the exchange rate has already exceeded 1,430 won, it could go up to 1,470 won if dollar strength continues. 1,470 won is an important resistance level both psychologically and technically, and if it exceeds this level, market anxiety could grow even more.
In the end, we have entered a new era where the traditional formula "good stock prices mean a strong won" no longer works.
2️⃣ Economic Terms
📕 Net Buying
Net buying means the pure buying amount after subtracting selling amount from buying amount by a specific group of investors.
- Foreign net buying of 4.2 trillion won means foreigners bought 4.2 trillion won more Korean stocks than they sold.
- Large net buying is interpreted as a signal of strong investment demand for that market.
- Traditionally, foreign net buying leads to increased won demand, becoming a factor for exchange rate decline (won strength).
📕 Current Account
The current account is the international transaction balance combining exports and imports of goods and services, income balance, and transfer balance.
- A current account surplus means foreign currency is flowing into the country, creating pressure for the won to strengthen.
- Korea's current account surplus of $7.9 billion in August means there was significant foreign currency inflow.
- However, the fact that the exchange rate rose despite the current account surplus means other factors worked more strongly.
📕 Foreign Exchange Reserves
Foreign exchange reserves are the total amount of foreign currency assets a country holds, serving as a measure of exchange rate stability and external payment ability.
- Korea's foreign exchange reserves are about $400 billion, ranking 9th in the world.
- The $350 billion investment discussion with the US is a size that accounts for a significant portion of foreign exchange reserves.
- If foreign exchange reserves decrease rapidly, the ability to defend the exchange rate weakens and concerns about a currency crisis can grow.
📕 Dollar Strength
Dollar strength is a phenomenon where the value of the US dollar rises compared to other countries' currencies.
- It occurs when the US economy is strong or interest rates are high, and investors worldwide prefer dollar assets.
- During dollar strength periods, most currencies including Korea, Europe, and Japan show weakness against the dollar.
- Global dollar strength is a macroeconomic trend that is difficult for individual countries to stop with their policies.
3️⃣ Principles and Economic Outlook
✅ Changes in Traditional Relationship Between Stock Prices and Exchange Rates
Let me analyze the structural changes where stock price increases no longer lead to won strength, unlike in the past.
First, the balance of two-way capital flows has broken down. Traditionally, when foreigners bought Korean stocks, demand for won increased and the exchange rate fell. However, recently, as domestic investors' overseas investments have increased significantly, a two-way flow has emerged. In particular, domestic investors' interest in US stocks has exploded. As of the first half of 2025, domestic investors' overseas stock net buying is estimated to be about 30 trillion won. This is comparable to or even larger than foreigners' net buying of domestic stocks. Even if foreigners buy won to purchase Korean stocks, if Koreans simultaneously buy dollars to purchase US stocks, the net effect on the exchange rate is limited or may actually result in won weakness.
Second, companies' overseas investments and dividend remittances are also won weakness factors. Large companies like Samsung Electronics and SK Hynix are building large-scale production facilities in the US and Europe, causing massive foreign currency outflows. Also, dividends paid to foreign investors are considerable. With foreign ownership in KOSPI-listed companies exceeding 30%, trillions of won in dollars are remitted overseas during dividend payment season. These structural outflow factors are offsetting the increase in won demand from foreign stock purchases.
Third, capital movement has become more free due to financial market opening and globalization. In the past, domestic investors found it difficult to invest overseas, but now they can easily buy US stocks through smartphone apps. Conversely, foreigners can also easily buy and sell Korean stocks. Due to this two-way opening, one-way fund flows have disappeared and the correlation between stock prices and exchange rates has weakened. Also, domestic institutional investors are increasing their overseas asset ratio for portfolio diversification, which is also creating won weakness pressure.
As the traditional correlation between stock prices and exchange rates weakens, we have entered an era where we need to analyze the two markets separately.
✅ Background and Sustainability of Global Dollar Strength
Let me examine the causes of the ongoing global dollar strength and future outlook.
First, the relative strength of the US economy is supporting the dollar. The US economic growth rate in 2025 is expected to be around 2.5%, while Europe is expected to be in the early 1% range and Japan around 0.5%. Korea is also expected to have a growth rate in the early 2% range, lower than the US. The currency of a country with a strong economy tends to increase in value due to higher investment attractiveness. In particular, the US maintains overwhelming superiority in high-tech industries such as AI, semiconductors, and biotech, attracting global capital. Funds from around the world wanting to invest in companies like Nvidia and Microsoft are increasing dollar demand.
Second, the US interest rate advantage continues. Although the Federal Reserve has lowered interest rates, it still maintains high interest rates of 4.5-4.75%. In contrast, the European Central Bank (ECB) is in the early 3% range, and the Bank of Japan (BOJ) is at 0.25%. The Bank of Korea is also at around 3.0%, lower than the US. Since holding assets in the currency of a country with high interest rates can earn more interest income, investors prefer dollar assets. Moreover, US Treasury bonds are perceived as safe assets, so demand increases further when uncertainty grows.
Third, geopolitical instability and trade disputes are increasing dollar demand. When global uncertainties increase, such as the technology hegemony competition between the US and China, tensions in the Middle East, and the Russia-Ukraine war, investors tend to flee to the safe asset of the dollar. Also, due to the reshoring policy promoted by the US government, demand for dollars is increasing as foreign companies need dollars to build factories in the US. These various factors are working together, and dollar strength is unlikely to end in the short term.
Global dollar strength is a structural and long-term phenomenon, putting weakness pressure on most countries' currencies, including Korea.
✅ Economic Impact of Exchange Rate Rise and Policy Response
Let me analyze the impact of the won/dollar exchange rate rise on the Korean economy and the government's response measures.
First, it's good news for export companies but bad news for import prices. When the exchange rate rises, sales in won increase even when exporting the same product. For example, when exporting a $100 product, if the exchange rate is 1,300 won, you receive 130,000 won, but if it's 1,430 won, you receive 143,000 won. This has the effect of increasing profits for export giants like Samsung Electronics and Hyundai Motor. However, conversely, prices of imported raw materials like crude oil, natural gas, wheat, and corn go up. This leads to increased manufacturing costs and consumer price increases, becoming a burden on ordinary people's economy. Especially for Korea, which depends entirely on imports for energy, exchange rate rises are a factor that increases inflation pressure.
Second, the repayment burden increases for companies with large foreign currency debt. Many Korean companies hold foreign currency debt borrowed in dollars. When the exchange rate rises, even for the same amount of dollar debt, the amount converted to won increases, increasing the repayment burden. For example, when you have $100 million in debt and the exchange rate rises from 1,300 won to 1,430 won, the won-based debt increases from 130 billion won to 143 billion won - an increase of 13 billion won. Industries with high foreign currency debt ratios, such as construction, shipping, and aviation, face the risk of deteriorating financial health due to exchange rate rises.
Third, the government and Bank of Korea's policy dilemma grows. If the exchange rate rises rapidly, the government may try to intervene in the foreign exchange market to defend the won's value. However, this requires using foreign exchange reserves, and with large-scale capital outflow plans like the $350 billion investment discussion with the US, it's difficult to use foreign exchange reserves carelessly. Also, raising interest rates to defend the exchange rate makes the domestic economy difficult, while lowering rates can cause the exchange rate to rise more, making policy choices difficult. Experts believe that if the exchange rate exceeds 1,470 won, the government is likely to engage in full-scale market intervention.
Exchange rate rises have double-sided effects, and the government faces the difficult task of balancing export competitiveness and price stability.
✅ Future Outlook and Investor Response Strategies
Let me summarize the outlook for future exchange rate and stock price movements, and strategies investors should take.
First, the exchange rate could rise to the 1,450-1,470 won range in the short term. As long as global dollar strength continues and uncertainty over investment negotiations with the US is not resolved, won weakness pressure is likely to continue. Especially with political uncertainty growing ahead of the US presidential election, the safe asset preference phenomenon may strengthen, further increasing dollar demand. However, 1,470 won is a psychological resistance level, and if it exceeds this level, the government is likely to intervene in the foreign exchange market, making it difficult to rise further. In the long term, as the US economy slows and interest rate cuts accelerate, dollar strength will weaken and the exchange rate is expected to stabilize.
Second, stock prices will have high volatility depending on foreign supply and earnings. Although KOSPI broke through the 3,600 level to reach an all-time high, higher valuations could be a burden. If foreigners continue net buying, there is room for further rises, but if buying pressure weakens, there is also a possibility of correction. Especially if export companies' earnings improve due to exchange rate rises, it's positive, but if manufacturing costs rise due to increased import raw material prices, there may be concerns about margin reduction. What outlook companies present in the October earnings announcement season will determine the future direction of stock prices.
Third, investors need portfolio construction considering exchange rate fluctuations. If the exchange rate is expected to rise, it's advantageous to invest in export giant stocks or dollar assets. Stocks like Samsung Electronics, Hyundai Motor, and SK Hynix can benefit from exchange rate rises. Conversely, industries with high import dependence, such as aviation, distribution, and food, can be hit by exchange rate rises, so caution is needed. Also, holding some dollar assets like US stocks or dollar deposits can have the effect of increasing asset value when the exchange rate rises. However, since exchange rates are difficult to predict, it's important to manage risk through diversified investment rather than betting excessively on one side.
A strategy is needed to view exchange rates and stock prices as separate markets and construct portfolios while analyzing each flow independently.
4️⃣ In Conclusion
The phenomenon where KOSPI reaches an all-time high but the won weakens shows that the Korean financial market has changed to a new structure different from the past. The traditional formula "good stock prices mean a strong won" no longer works, and investors need to understand and respond to this change.
The core of this phenomenon is the balance of two-way capital flows. While foreigners buy won to purchase Korean stocks, domestic investors simultaneously buy dollars to purchase US stocks, and these flows intertwine to offset downward pressure on the exchange rate. On top of this, the macroeconomic trend of global dollar strength is added, causing the won to show weakness.
Exchange rate rises are good news for export companies but have side effects such as rising import prices and increased foreign currency debt burdens. The government faces difficult policy choices between foreign exchange market stability and price management, and is expected to work to defend the psychological resistance level of 1,470 won.
For investors, it's important to view stock prices and exchange rates as separate markets and analyze each. It's necessary to distinguish between exchange rate rise beneficiaries and victims, and construct portfolios prepared for exchange rate fluctuations, such as holding some dollar assets. Also, they should carefully watch companies' outlooks in the October earnings season and adjust investment strategies.
In the long term, as US interest rate cuts accelerate and dollar strength weakens, the exchange rate is expected to stabilize. However, since the timing is uncertain, a wise approach is to manage risk through diversified investment without being shaken by short-term volatility.
In the end, now is a transition period where we need to understand the changed market structure and establish investment strategies from a new perspective rather than relying on past experiences and formulas. This is a time when a balanced view considering the independent movements of both markets - stock prices and exchange rates - is needed.
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