"Is it going to 1,500 won?'…Groans over won-dollar exchange rate breaking 1,460 won

Foreigners in the securities market

Large sell-offs spur won weakness

Surge in overseas direct investment, etc. 

The won-dollar exchange rate jumped into the 1,460-won range for the first time in seven months. The won's value against the dollar fell by as much as 2% over the week, placing it among the top depreciators among major currencies. On internet communities, there is talk that "a breach of 1,500 won for the won-dollar exchange rate is a matter of time." Parents of international students are also groaning over rapidly rising study-abroad costs.

"Foreign profit-taking on KOSPI hits the won"

According to the Seoul foreign exchange market on the 9th, the night session closing rate of the won-dollar exchange on the 7th was 1,461.5 won, up 28.5 won from the previous week. It is the highest in seven months since April 9 (1,472.0 won). That was a period when political uncertainty from impeachment had somewhat eased, while the U.S. imposed reciprocal tariffs and U.S.-China tensions were escalating.

The won was the weakest among major currencies last week. The won's value against the dollar fell 1.95% from the previous week based on the night session closing rate on the 7th. In contrast, the dollar index, which shows the dollar's value against the six major currencies, appreciated by about 0.15% over the same period, making the won's decline large.

Among the currencies that make up the dollar index, the euro (+0.23%), the yen (+0.33%), and the pound (+0.11%) were strong against the dollar. The Swiss franc (-0.10%), the Swedish krona (-0.42%), and the Canadian dollar (-0.14%) were weak against the dollar, but only slightly compared to the won.

Net sales of stocks by foreign investors worth 7.2638 trillion won were cited as the primary factor dragging down the won's value. Foreign investors sold stocks in the securities market for five consecutive trading days from the 3rd to the 7th.

Over the week, this exceeded last month's total net buying by foreigners (5.3447 trillion won) and approached foreigners' net buying for the month of September (7.4465 trillion won). Baek Seok-hyun, an economist at Shinhan Bank, explained, "Against the backdrop of events such as the APEC summit, foreigners engaged in large-scale profit-taking in the securities market that had risen excessively, delivering a direct blow to the won," and added, "Foreigners' net buying of Korean stocks, which had helped defend the won's value up to October, has reversed, making the won's weakness more pronounced."

Is a breach of 1,500 won possible?

The 'seohak gaemi' craze and the increase in direct purchases of U.S. stocks are also acting as structural downward pressure on the won. From January to September this year, residents' overseas securities investment amounted to $99.85 billion, about 3.4 times the $29.65 billion of foreign investment in domestic securities during the same period.

Because direct purchases of overseas stocks have increased, the exchange rate has been slow to fall despite a current account surplus. Lee Min-hyuk, an economist at KB Kookmin Bank, analyzed in a recent report that "our country's dollar balance (current account + direct investment + securities investment) used to be in clear surplus until the 2010s, but is now at a balanced level."

He diagnosed, "The dollars earned from the current account have nearly all flowed out through the financial account," and added, "A structure has become entrenched in which domestic dollar supply is rapidly re-exported abroad through overseas securities investment centered on seohak gaemi and pension funds, and corporate overseas direct investment."

The Bank of Korea also pointed out in a recent report that the ratio of net external assets to the size of the Korean economy is higher than the balanced level, raising concerns that pressure for won weakness could increase. The government's cash investment in the U.S. (annual limit of $20 billion) could also act as a factor pushing up the exchange rate.

Experts' views diverge on the possibility of the exchange rate breaking 1,500 won. However, many expect that while the end of Fed tightening and a boost in exports centered on semiconductors may limit further won depreciation, it will be difficult for the won-dollar exchange rate to return below 1,400 won.

Song Jong-hyun reporter scream@hankyung.com