Stronger stocks usually mean a weaker won. Why isn’t that happening now?

As Korean stocks rise, foreign investors lock in gains and pull them in dollars, spiking demand for the greenback and weakening the won.

At least, that's how it usually works. But lately, that negative correlation is starting to break down. 

The Kospi experienced a sharp sell-off on Tuesday, with foreign investors selling more than 4.5 trillion won ($3.4 billion) in shares to retain gains or stymie losses as the market plunged 5.46 percent from the previous session to close at 6,035.35. The index briefly fell below the 6,000 mark as losses deepened during trading before clawing back above the threshold.

The plunge led to a temporary sell-side trading curb, known locally as a sidecar, earlier in the day. A sidecar halts program trading for five minutes when certain market indexes fluctuate beyond a designated threshold.

The won, however, has remained relatively strong despite the weak stock market.

The local currency was trading at 1,345.1 won against the dollar at the session’s close on Tuesday. It weakened by 10 won from the previous regular trading session’s close amid foreign stock selling but remained strong compared with this year’s average.

The won strengthened to trade in the 1,333 won range a day earlier, its strongest level in two years.

The typical link between a weak exchange rate and a stronger stock market is no longer holding.

An imbalance in supply and demand in the foreign exchange market appears to be bolstering the won.

Record-breaking semiconductor exports have led Korean companies to convert a large amount of dollar earnings into won, which has created an unusually heavy supply of dollars in the market.

“Dollar supply continues from factors such as the conversion of SK hynix’s U.S.-listed American depositary receipts and dollar selling by exporters,” an unnamed foreign exchange trader at a commercial bank said. “More sellers are now looking to unload dollars in advance because they are worried the exchange rate could fall further [and lead to a stronger won].”

Essentially, the dollars Korean companies earn overseas and convert to won domestically are blunting the demand for the greenback by foreign investors selling Korean stocks.

“Even if semiconductor stocks undergo a correction, the supply of dollars backed by actual exports will continue separately,” Min Kyung-won, a researcher at Woori Bank, said. “That means dollar selling is likely to emerge whenever the exchange rate rises [and the won weakens].”

Some analysts say the stronger won may actually be encouraging foreign investors to sell Korean stocks as they seek to pare losses in converting gains to dollars.

“This is a phenomenon that was rarely seen in the past,” Park Sang-hyun, a researcher at iM Securities, said. “If we had to identify a reason, the sharp appreciation of the won’s value and increased currency volatility appear to be encouraging foreign investors to sell Korean equities.”

A stronger won can also make corporate earnings appear weaker in won terms, another negative factor for the stock market, as movement toward parity reduces the total earnings in won when converted from dollars.

“When third quarter earnings forecasts were first prepared, we were using an exchange rate of 1,440 won per dollar,” a securities industry source said. “Now that the rate has strengthened by more than 100 won, shareholders can feel much more disappointed even if sales volumes are unchanged.”

Unpredictable currency volatility ultimately lies behind the breakdown of the traditional link between Korea’s stock and foreign exchange markets, analysts say.

“The won’s appreciation in value is gradually approaching an excessive level based on the won’s exchange rate against the yen,” Park said. “It is positive that much of the won’s previous excessive weakness has been corrected, but aggressive net selling of Korean stocks by foreign investors is unlikely to ease until volatility in the won’s value subsides.”

Experts nevertheless expect further appreciation of the won to be limited.

“Strong exports support a stronger won, but dollar demand from foreign direct investment, including investment in the United States, as well as overseas investment by institutions such as the National Pension Service, is expected to offset part of the dollar supply,” Ahn Ki-tae, a researcher at NH Investment & Securities, said. “The dollar-won exchange rate is likely to remain in the mid-to-high 1,300 won range.”

Updated, Oct. 14, 2026: Reframed the context of the sell-off.

BY JANG SEO-YUN [[email protected]]