The Korean won is breaking its traditional link with the country's stock market, as chip-driven dollar inflows and the won's growing unpredictability reshape the relationship. Historically, the won's value moved in tandem with the Kospi and Kosdaq, as foreign investors' buying and selling of shares influenced currency demand. However, this dynamic has weakened recently, with the won depreciating to 1,549.4 per dollar on June 30 before rebounding sharply to 1,324.2 per dollar on Thursday, its strongest level in two years.
Over the same period, foreign investors sold a net 62.84 trillion won ($47.4 billion) worth of shares on the main Kospi market, sending the index tumbling 34.5 percent from 8,476.48 to 5,533.77. The divergence is driven by record semiconductor trade surpluses, which are flooding the domestic forex market with dollars. The country's exports surpassed $121.1 billion in September, bringing the cumulative total to $814.7 billion, already exceeding last year's full-year record of $709.3 billion.
The won's increasingly unpredictable nature is also contributing to its decoupling from the stock market. The currency has become prone to sharp swings, with some investors selling shares in fear of a sharp reversal in the won's direction. Analysts note that the won's rapid appreciation and heightened volatility are fueling foreign investors' selling sentiment toward Korean equities. For instance, the won strengthened to the 830 level per 100 Japanese yen on Tuesday, its strongest since January 2008, signaling a deviation from its usual trajectory.
Min Kyung-won, an economist at Woori Bank, expects exporters' dollar-selling flows to remain a dominant force in the forex market. Meanwhile, Park Sang-hyun, an analyst at iM Securities, described the current trend as 'rare,' highlighting the won's lopsided appreciation against the yen as another sign of its decoupling from traditional drivers.