🚨 Korean Retail Investors Drove Stock Rally and Won Weakness
Today Korean Economic News for Beginners | 2025.10.26
0️⃣ Exchange Rate Hits 1400 Won Despite Foreign Net Buying, Overseas Investment Surge to Blame
📌 Traditional Formula Broken...Korean Investors' Overseas Stock Investment Causes Won Weakness
💬 An unusual situation has occurred as the KOSPI approaches the 4000 level showing strength. Despite foreign investors net purchasing about 6.068 trillion won worth of Korean stocks in September, the won-dollar exchange rate passed 1400 won and the won continues to weaken. Normally, foreign net buying of stocks increases dollar inflow and leads to won strength, but this time the opposite happened. Experts say Korean retail investors' surge in overseas stock investments and the widening Korea-US interest rate gap worked together. Specifically, Korean investors called 'Seohak Ants' (overseas investors) moved heavily into the US stock market, causing dollar demand to surge, which became the main cause of won weakness.
1️⃣ Easy Understanding
When foreigners buy a lot of Korean stocks, the won should normally get stronger, but this time the won got weaker instead. The reason is that Korean investors bought more dollars to buy US stocks, causing the won's value to fall.
Let me explain the normal situation first. When foreign investors want to buy Korean stocks, they need to exchange their money (like US dollars) into Korean won. For example, if a US investor wants to buy Samsung Electronics stock, they need to exchange dollars into won. When foreigners buy a lot of Korean stocks this way, dollars come into Korea and won demand increases, making the won's value go up. We call this "won strength."
But something strange happened in September. Foreigners bought over 6 trillion won worth of Korean stocks, yet the won-dollar exchange rate passed 1400 won and the won weakened. When the exchange rate goes up, it means the won's value is falling. For example, if the exchange rate rises from 1300 won to 1400 won, you need to pay 100 won more to get the same 1 dollar, so the won's value has fallen.
Why did this happen? The biggest reason is 'Seohak Ants.' Seohak Ants refers to Korean retail investors who invest in overseas stocks like those in the US. Recently, US tech stocks like Tesla, Nvidia, and Apple rose sharply, and many Korean investors bought dollars to buy these stocks.
Let's look at the specific process. When Korean investors want to buy US stocks, they first need to exchange won into dollars. For example, to buy 100 million won worth of Tesla stock, they need to exchange 100 million won into about 70,000 dollars (based on 1400 won exchange rate) at the bank. When many people buy dollars at the same time like this, dollar demand surges and the dollar price (exchange rate) goes up.
The statistics make the situation clearer. From January to September this year, Korean investors invested about 52 billion dollars (about 73 trillion won) in overseas stocks. This is nearly double compared to the same period last year. Just in September alone, about 6 billion dollars (about 8.4 trillion won) flowed out overseas.
To summarize this situation: Foreigners bought Korean stocks and brought dollars in by exchanging them for won, but Koreans sent won to the US by exchanging them for dollars to buy US stocks. As a result, the dollars Koreans sent out were more than the dollars foreigners brought in, so the won's value fell.
In the end, an unusual situation occurred where the domestic stock market shows strength but the won shows weakness, and this is an important signal showing a change in investment flows.
2️⃣ Economic Terms
📕 Seohak Ants
Seohak Ants refers to Korean retail investors who invest in overseas stocks, especially US stocks.
- 'Seohak' means going west (to America) to learn, and 'Ants' means small retail investors.
- Seohak Ants have been rapidly increasing recently due to US tech stock strength and improved investment access.
- Their increase in overseas investment increases dollar demand domestically, becoming a factor for exchange rate rise.
📕 Exchange Rate (Won-Dollar Exchange Rate)
Exchange rate means the ratio at which one country's currency exchanges with another country's currency.
- A won-dollar exchange rate of 1400 won means you need 1400 won to buy 1 dollar.
- When the exchange rate rises (e.g., 1300 won → 1400 won), we say won weakness; when it falls (e.g., 1400 won → 1300 won), we say won strength.
- Exchange rate changes directly affect export-import companies' profitability and overseas travel costs.
📕 Interest Rate Gap
Interest rate gap means the difference in policy rates or market rates between two countries.
- Currently, the US base rate is 1.25-1.5 percentage points higher than Korea's.
- When the interest rate gap is large, investors tend to move money to countries with higher interest rates.
- This can lead to capital outflow and exchange rate rise.
📕 Net Buying
Net buying means the net amount after subtracting selling amount from buying amount during a specific period.
- When foreigners net bought 6 trillion won in September, it means they bought 6 trillion won more than they sold.
- When net buying is positive, it means that group overall bought stocks.
- Foreign net buying generally works as a factor for stock price rise and won strength.
3️⃣ Principles and Economic Outlook
✅ Why the Traditional Exchange Rate Formula Broke
Let's analyze why the traditional formula of foreign net buying and won strength didn't work this time.
First, Korean investors' overseas investment scale overwhelmed foreign net buying. In September, foreigners net bought 6 trillion won, but in the same period Korean investors invested about 8.4 trillion won in overseas stocks. Just comparing the numbers, more dollars left Korea than came in. Moreover, foreign buying is often done with dollars that institutional investors already hold, so the actual dollar inflow effect can be limited. In contrast, retail investors' overseas investment is mostly done through new exchanges, so it has a big effect of actually increasing dollar demand.
Second, the widening Korea-US interest rate gap accelerated capital outflow. Although the US Federal Reserve cut rates by 0.5 percentage points in September, US rates are still 1.25-1.5 percentage points higher than Korea's. This interest rate gap isn't just about deposit rates. It signals that the expected returns on all US assets like bonds, real estate, and stocks are higher than Korea's. Especially as the US stock market rose over 20% this year based on S&P500, Korean investors' desire for overseas investment grew even more.
Third, structurally changed investment environment also had an effect. In the past, investing in overseas stocks was troublesome and expensive in fees, but recently it became easy to buy US stocks through mobile apps. As fintech companies like Kakao Pay Securities and Toss Securities strengthened their overseas stock investment services, entry barriers greatly lowered. Also, as information about US tech stocks like Nvidia and Tesla is shared in real-time, Korean investors' understanding of the US market has improved.
A new pattern is emerging where Korean investors' overseas investment has a bigger impact than foreign net buying.
✅ How Won Weakness Affects the Economy
Let's look at how won weakness affects the Korean economy if it continues.
First, it's positive for export companies but negative for import companies. When the won's value falls, the dollar price of Korean products decreases, making them more price competitive. For example, a product worth 1 million won was about 770 dollars when the exchange rate was 1300 won, but at 1400 won it's about 714 dollars. This is good news for major exporters like Samsung Electronics and Hyundai Motor. On the other hand, prices of essential imports like crude oil, natural gas, and semiconductor equipment go up. Especially since Korea depends entirely on imports for energy, it faces import price rise pressure when the won weakens.
Second, inflation pressure can grow. When import raw materials and energy prices rise, this is eventually passed on to consumer prices. Foods like bread and instant noodles use imported wheat, and electricity bills are affected by imported LNG prices. It's estimated that import prices rise an average of 2-3% when the exchange rate rises 100 won. With the government currently focusing on price stability, exchange rate rise is a burdensome factor. If won weakness continues, the Bank of Korea will also hesitate to cut rates.
Third, household overseas travel costs and study abroad expenses increase. When the exchange rate rises from 1300 won to 1400 won, exchanging the same 10,000 dollars requires 1 million won more. This is a direct burden for households planning US travel or study abroad. Also, when buying things through overseas direct purchase, prices go up and consumer burden increases. This can lead to consumption shrinkage and negatively affect domestic economy.
Won weakness is good for export companies but can overall work as a factor for price rise and consumption shrinkage.
✅ Sustainability of the Seohak Ants Phenomenon
Let's forecast whether Korean investors' overseas investment fever will continue.
First, the US market's attractiveness seems likely to be maintained for a while. The AI semiconductor situation centered on Nvidia is good, and growth stories of US tech stocks like Tesla's autonomous driving technology development and Apple's new product releases continue. Also, as the US economy still maintains solid growth, company performance is also expected to be good. In contrast, the Korean stock market is concentrated on some large caps like Samsung Electronics and SK Hynix, and small-mid caps are struggling. This relative attractiveness gap is a factor continuing overseas investment.
Second, the Korea-US interest rate gap is not expected to narrow easily. The US Fed is cautious about rapid rate cuts as inflation still exceeds the target (2%). On the other hand, the Bank of Korea has difficulty easily lowering rates to stabilize the real estate market and manage household debt. Therefore, an interest rate gap of over 1 percentage point is likely to be maintained for a while, and this will continue to work as an overseas investment incentive.
Third, however, excessive overseas investment can be adjusted. Historically, concentration in one direction doesn't last long. In 2018 too, there was a similar overseas investment boom, but when the US stock market adjusted, many investors suffered losses, and overseas investment slowed down after that. If the US stock market falls sharply, or if the exchange rate surges and currency losses grow, the Seohak Ants fever could also cool. Also, there's a possibility that the government could strengthen regulations concerned about excessive capital outflow.
In the short term, overseas investment flow will continue, but we should also keep open the possibility of adjustment depending on market conditions.
4️⃣ In Conclusion
The phenomenon of the won showing weakness even though foreigners net purchased Korean stocks is a result of Korean investors' overseas investment surge and the widening Korea-US interest rate gap working together. This is an important signal showing structural change in Korea's financial market.
The biggest change is Korean retail investors' investment behavior. In the past, most invested only in domestic stocks, but now they're looking toward the global market. As investment access improved and information is shared in real-time, Korean investors are also actively participating in the US market.
This change has positive aspects too. Investors can diversify their portfolios by investing in global quality companies and get better returns in the long term. Also, there's an educational effect of understanding global economic flows by widening the view beyond just the domestic stock market.
But there are concerns too. If large-scale capital outflow continues, the exchange rate can surge, and this can lead to import price rise and inflation. Also, there's a risk that many investors could buy overseas stocks at high points and suffer big losses in a correction. Especially considering exchange rate changes, the risk grows even more.
The government and Bank of Korea are also watching this situation closely. They can intervene if necessary for foreign exchange market stability, and can also consider policy measures to prevent excessive capital outflow. However, restricting free capital movement goes against free market principles, so a careful approach is needed.
From investors' perspective, both opportunities and risks of overseas investment should be considered. Rather than unconditionally concentrating on the US market just because it's attractive, domestic and overseas assets should be properly allocated and exchange rate change risk should also be considered. Also, rather than being eager for short-term profits, diversified investment from a long-term perspective is desirable.
In the end, this phenomenon is evidence that Korea's financial market is globalizing, and it's a time when investors also need a more careful and strategic approach. As opportunities and risks coexist, maintaining a balanced view is important.
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