[Edaily Reporter Kim Kyung-eun] It appears the primary driver of the sharp rise in the won-dollar exchange rate has shifted. While at the beginning of the year, funds flowing out to foreign stocks by "individual investors" were identified as the main cause of the exchange rate increase, recently, large-scale net selling of domestic stocks by foreign investors has taken that place.
According to the financial investment industry on the 5th, the scale of net purchases of U.S. stocks by domestic investors rapidly shrank from $5 billion in January to $3.9 billion in February and $1.7 billion in March. In April, this shifted to a net sell-off of $470 million, which expanded to a net sell-off of $940 million in May. As of today, June has seen a net sell-off of $1.12 billion.

Meanwhile, foreign selling pressure on domestic stocks has intensified over the same period. So far this year, foreign investors have net sold approximately 110 trillion won (combined KOSPI and KOSDAQ) in the domestic stock market. In particular, since mid-May, the scale of selling has surged to an average of 3 trillion won per day. The impact has grown so significant that Lee Chang-yong, former governor of the Bank of Korea, personally stepped forward to identify it as the main factor behind the sharp rise in the exchange rate.
Paradoxically, even as foreign investors have been selling off their holdings en masse, the valuation of their stock portfolios has actually increased. According to the Financial Supervisory Service, the value of domestic stocks held by foreign investors nearly doubled from 1,327 trillion won at the end of last year to 2,121 trillion won as of the end of April. As the KOSPI index has risen steeply, a structure has formed where the balance continues to grow even as they sell.
Analysts suggest that foreign selling is driven more by mechanical portfolio rebalancing than by pessimism toward the Korean market. This is because, with #SamsungElectronics and #SKHynix accounting for nearly 53% of the KOSPI’s market capitalization, it has become difficult to meet the diversification requirements necessary to maintain their status as Qualified Investment Companies (RICs), which grants corporate tax exemptions under U.S. tax law.
Jeon Gyu-yeon, an analyst at Hana Securities, explained, “To maintain RIC status, the weight of any single stock must be less than 25%, and the combined weight of stocks accounting for 5% or more must not exceed 50% of total assets.” He added, “Given that Samsung Electronics and SK Hynix account for more than half of the KOSPI, holding them in proportion to their KOSPI weight automatically violates these conditions.”
The securities industry believes that the exchange rate will stabilize once foreign investor rebalancing subsides. However, there is also a prevailing view that the extent of any decline will be limited due to remaining structural factors, such as reduced demand for dollar conversion resulting from direct investment agreements with the U.S. and oil price volatility caused by the blockade of the Strait of Hormuz.
Researcher Jeon stated, “Pressure for the exchange rate to rise can only be alleviated if foreign capital flows into the Korean stock market based on a positive outlook following the foreign rebalancing.”
Kim Yoo-mi, a researcher at Kiwoom Securities, predicted, “If foreign capital outflows continue, downward rigidity in the exchange rate will persist for a considerable period despite an expanding current account surplus.” She added, “If geopolitical uncertainties stemming from the Middle East ease and foreign net selling subsides, investor sentiment toward the won will recover, causing the won-dollar exchange rate to fall to the 1,400 won range.”