The Korean won strengthened below 1500 per dollar for the first time in 37 trading days, closing at 1498.5 won, while foreign investors turned net buyers in the KOSPI market for the first time in 14 trading days with a 3390억원 net purchase. The won's appreciation was driven by dollar weakness and anticipated dollar inflows from SK Hynix's American Depositary Receipt (ADR) issuance. The KOSPI closed at 7246.79, down 5.35%, with market stabilization mechanisms triggered for two consecutive days.
Exchange Rate Falls Below 1500 Won for First Time in 37 Trading Days
The won-dollar exchange rate fell 29.7 won from 24 hours prior to close at 1498.5 won (3:30 PM closing price) in the Seoul foreign exchange market. This marked the first time the exchange rate closed below 1500 won since May 14, when it stood at 1491.0 won. Dollar weakness supported the won's strength, with the dollar index against six major currencies falling slightly to 101.00 at 3:41 PM from 101.02 the previous day. Lee Kyung-min, a researcher at Daishin Securities, stated that "dollar funds raised through SK Hynix's ADR issuance are expected to be used as capital expenditure (CapEx) resources domestically, expanding dollar selling and won buying demand."
Foreign Investors Turn Net Buyers After 14-Day Selling Streak
Foreign investors net purchased 3390억원 worth of shares in the Korean stock market, turning to net buying for the first time in 14 trading days. Institutions net sold 3552억원, while individual investors net sold 357억원. Foreign investors had maintained a selling bias since the beginning of the year, recording net selling every single day since the 19th of last month. Byun Jun-ho, a researcher at IBK Investment & Securities, stated that "as the KOSPI's sharp decline has increased price merit, foreign selling pressure may gradually ease," adding that "given the solid fundamentals of semiconductor industry conditions and earnings, the possibility of the KOSPI entering a bear market with an additional 20% or more decline from its peak is low, and the 7300 level is likely to serve as short-term support." A securities industry official noted that "the fact that foreigners turned to net buying amid the stock market plunge is itself a meaningful change," but added that "for this to lead to a trend of supply-demand improvement, recovery in artificial intelligence (AI) and semiconductor investment sentiment, and domestic fund inflows need to be confirmed together."
Samsung and SK Hynix Declines Ease National Pension Rebalancing Concerns
Market participants had cited the possibility of large-scale selling by the National Pension Service to meet its domestic stock target allocation as a major supply-demand concern. Concerns persisted that the National Pension could engage in tens of trillions of won in selling during rebalancing, as the KOSPI's surge since the beginning of the year raised the possibility that domestic stock allocation exceeded target levels. However, the recent sharp corrections in Samsung Electronics and SK Hynix have somewhat alleviated these concerns. Since National Pension rebalancing is based on the valuation of domestic stock holdings, the recent semiconductor stock corrections have emerged as a variable. If the actual rebalancing scale is more limited than initially feared, it could act as a factor reducing downward pressure on the Korean stock market in combination with improved foreign investor supply-demand. A securities industry official stated that "as Samsung Electronics and SK Hynix have undergone corrections of around 30% recently, the National Pension's domestic stock allocation burden may have been partially alleviated," adding that "if the additional selling scale to meet target allocation is not as large as expected, supply-demand burdens in the second half could be reduced accordingly."
Market Volatility Remains Elevated with Circuit Breakers Triggered
The Korean stock market has continued to experience extreme volatility, with sell-side circuit breakers and market-wide circuit breakers triggered for two consecutive days. Market observers point out that high volatility is acting as a factor blocking new fund inflows and dampening investment sentiment. Lee Jae-won, a researcher at Yuanta Securities Korea, stated that "since the introduction of single-stock leveraged exchange-traded funds (ETFs), volatility in the Korean stock market has expanded excessively compared to major Asian markets," adding that "as volatility increases, risk management and liquidity burdens expand, so institutional improvements that can lower volatility are needed for market stability." Lee analyzed that "after a Financial Services Commission official remarked to the effect that 'leveraged ETFs and market volatility are unrelated,' investors may have assessed the possibility of institutional improvement as low, which could have had a negative impact on investment sentiment." However, Lee diagnosed that excessive pessimism at current price levels should be avoided, as the KOSPI's 12-month forward price-to-earnings ratio (PER) has fallen to 6.2 times, approaching the level of the 2008 global financial crisis. He emphasized that "what is important now is not whether to sell more semiconductors, but to confirm whether AI investment is actually slowing."
FAQ
Q1: Why did the Korean won strengthen below 1500 per dollar for the first time in 37 trading days?
A1: The won-dollar exchange rate fell 29.7 won to close at 1498.5 won, driven by dollar weakness (dollar index fell to 101.00) and anticipated dollar inflows from SK Hynix's ADR issuance. Lee Kyung-min of Daishin Securities stated that dollar funds raised through the ADR are expected to be used domestically, expanding dollar selling and won buying demand.
Q2: What caused foreign investors to turn net buyers in Korean stocks after 14 days of selling?
A2: Foreign investors net purchased 3390억원 after the KOSPI's sharp decline increased price merit. Byun Jun-ho of IBK Investment & Securities stated that foreign selling pressure may gradually ease given solid semiconductor fundamentals, and the 7300 level is likely to serve as short-term support, with the possibility of a bear market (additional 20%+ decline) being low.
Q3: How did recent declines in Samsung Electronics and SK Hynix affect National Pension rebalancing concerns?
A3: Market participants had feared the National Pension would engage in tens of trillions of won in selling to meet domestic stock target allocation after the KOSPI's surge. However, as Samsung Electronics and SK Hynix underwent corrections of around 30%, the National Pension's domestic stock allocation burden may have been partially alleviated, potentially reducing the actual rebalancing scale and second-half supply-demand burdens.
