Foreign investors net sold over 156 trillion won of Korean stocks through July 3, driving the won to a 5.92% depreciation against the US dollar year-to-date. The selling spree — five times the scale of the 2008 financial crisis annual total — pushed the first-half average exchange rate to 1,484.56 won, the second highest on record after the 1998 foreign exchange crisis. Analysts attribute the won's weakness to ongoing portfolio rebalancing by foreign investors, with estimates of 50–90 trillion won in remaining sell-side pressure. The Bank of Korea will implement 24-hour won/dollar trading starting July 6, a policy shift aimed at attracting offshore demand and stabilizing the exchange rate by eliminating trading gaps.
First-Half Exchange Rate Hits Second Highest Level Since 1998
The won/dollar exchange rate averaged 1,484.56 won in the first half of this year based on weekly closing prices, according to the Bank of Korea's economic statistics system. This marks the second highest half-year average on record, trailing only the 1,493.08 won average during the first half of 1998 during the foreign exchange crisis. The rate surpassed last year's first-half average of 1,426.71 won by nearly 60 won.
The exchange rate exceeded 1,500 won for the first time since the global financial crisis in March following the outbreak of war in the Middle East. After briefly dropping to the early 1,400s, the rate climbed back above 1,500 won in mid-May and has remained elevated. Based on weekly closing prices, the rate stayed above 1,500 won for 34 consecutive trading days from May 15 through July 3 — the longest streak since the 47-day run during the 1997–1998 foreign exchange crisis.
The rate fell more than 30 won on July 3 to close at 1,525.6 won. Market participants attributed the decline to weakening US rate hike expectations, a yen rebound, dollar selling by exporters anticipating a rate peak, and suspected intervention by foreign exchange authorities.
Won Depreciation Ranks Third Among Major Currencies
The won's 5.92% year-to-date depreciation against the dollar (as of July 3 NY close) ranks third largest among 20 major currencies, according to Yonhap Infomax. Only the Turkish lira (down 8.23%) and Indonesian rupiah (down 6.56%) posted steeper declines. Turkey is experiencing inflation near 30%, while Indonesia faces global investor outflows and surging oil prices.
The won's depreciation exceeded that of the Japanese yen (down 3.02%), which is trading at its weakest level in 40 years. The won also fell more sharply than other Asian currencies including the Indian rupee (down 5.72%) and Thai baht (down 5.04%). The dollar index — measuring the greenback against six major currencies — rose approximately 2.7% from the high 98s at year-end to around 101 recently, a smaller gain than the won's decline.
Analysts Forecast Exchange Rate to Remain Above 1,500 Won Through August
Market consensus holds that foreign investor rebalancing will continue in the near term, keeping the exchange rate elevated above 1,500 won. Seo Jeong-hoon, chief research fellow at Hana Bank, stated that foreign investors may have 50–90 trillion won in remaining sell-side capacity and that the rate will likely stay in the 1,500s at least through early August.
Park Hae-sik, senior research fellow at the Korea Institute of Finance, wrote in a recent report that exchange rate upward pressure remains high due to expanded overseas securities investment by domestic investors and dollar strength. Park forecast the rate will likely maintain current levels rather than quickly reverting to past ranges.
Some analysts anticipate downward pressure once rebalancing concludes within several months. SK Hynix's planned American Depositary Receipt (ADR) listing on Nasdaq in July is expected to increase dollar supply in Korea and contribute to rate declines. Baek Seok-hyun, economist at Shinhan Bank's S&T Center, noted that the recent pause in KOSPI gains reduces additional foreign selling pressure, and that the ADR listing event will create both upward and downward rate pressures.
Lee Nak-won, FX derivatives specialist at Nonghyup Bank, projected the rate will trade in the 1,520–1,570 won range in July before declining to around 1,470 won in the second half as US rate hikes curb inflation and foreign rebalancing concludes. Kim Jin-wook, chief economist at Citi Korea, forecast the rate will fall near 1,500 won within three months, supported by forex market stabilization measures, solid semiconductor exports, and private sector dollar funding.
Bank of Korea Implements 24-Hour Trading Starting July 6
Won/dollar trading will operate 24 hours starting July 6, enabling transactions during the previously unavailable 2:00 AM–9:00 AM window. The Bank of Korea implemented the measure to improve non-resident access to won conversion and absorb offshore trading demand — including non-deliverable forwards (NDFs) — into the domestic market.
Analysts expect the extended hours to attract foreign investment capital previously constrained by trading time limits, potentially increasing dollar supply and exerting downward pressure on the exchange rate. Seo stated that high NDF market won trading volumes indicate latent demand constrained by time zone mismatches, and that improved accessibility for overseas investors seeking Korean equity exposure could increase dollar supply.
Lim Hwan-yeol, senior researcher at Woori Bank, reported that offshore financial institutions are already making inquiries about the extended trading hours with high interest. Lim added that the extension can attract global investor offshore demand into the domestic market. Lim also noted that the elimination of trading gaps should reduce volatility by preventing overnight overseas events from causing concentrated price movements at the Seoul market open.
Some analysts caution that short-term price volatility may increase until overnight trading volume builds. Moon Jeong-hee, chief economist at KB Kookmin Bank, stated that limited initial participation could lead to price distortions from abnormal quotes or increased volatility, which will stabilize as participants and trading volume grow over time.
The government plans to introduce an offshore won settlement system in January next year to further improve offshore won trading and settlement infrastructure. Lee Nak-won of Nonghyup Bank stated that if cash settlement functions expand like NDFs and all systems achieve real-time computerization without local trading inconvenience, offshore demand can be gradually absorbed domestically. Lee added that regulations and trading costs should be improved to enable overseas investors to trade easily through foreign banks located in Korea.
FAQ
Q: How much have foreign investors sold in Korean stocks this year?
A: Foreign investors net sold approximately 156.56 trillion won of stocks on the Korea Exchange through July 3 — five times the 34.58 trillion won annual sell-off during the 2008 financial crisis.
Q: Why is the won depreciating faster than other major currencies?
A: The won's 5.92% year-to-date decline ranks third among 20 major currencies due to large-scale foreign investor portfolio rebalancing. Only Turkey (down 8.23% amid 30% inflation) and Indonesia (down 6.56% from investor outflows and oil price surges) posted steeper drops.
Q: What is the Bank of Korea doing to stabilize the exchange rate?
A: The Bank of Korea will implement 24-hour won/dollar trading starting July 6 to improve non-resident access to won conversion and absorb offshore market demand into the domestic market, potentially increasing dollar supply and reducing exchange rate volatility.
