The South Korean Won (KRW) has experienced a renewed rally, with the USD/KRW exchange rate dropping to the mid-1380s, according to DBS strategist Chang Wei Liang [1]. This strengthening of the KRW occurred even as the KOSPI index suffered a significant decline of nearly 6%, primarily driven by losses in semiconductor stocks [1].
DBS attributes the KRW's resilience to foreign investors capitalizing on the equity market correction to increase their holdings in Korean stocks. These purchases are reportedly being funded by selling US dollars, as custodian banks have been observed selling off USD to settle foreign equity transactions [1].
The strategist notes that while the market has previously underestimated Korea's strong economic fundamentals and the positive impact of rising memory prices on its terms of trade, the current environment is marked by heightened volatility in technology stocks and a KRW that is less undervalued than before. As a result, some caution is warranted despite the ongoing foreign inflows [1].
CONCLUSION
The South Korean Won's rally, driven by foreign equity inflows, stands out against the backdrop of a sharp KOSPI decline. While Korea's economic fundamentals remain solid, ongoing tech sector volatility and a less undervalued KRW suggest investors should remain cautious.