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Why Korean investors buying U.S. stocks draw forex authorities' scrutiny

Published: 08 Dec. 2025, 16:21 Updated: 09 Dec. 2025, 09:57

JIN MIN-JI
[email protected]

The won-dollar exchange rate is displayed at a booth in Myeong-dong in central Seoul on Nov. 26. [JOONGANG PHOTO]

[EXPLAINER]

Investors betting on U.S. stocks have become the primary targets of financial authorities that are struggling to rein in the won’s weakness against the U.S. dollar, sparking strong backlash amid concerns over regulatory tightening on overseas investments.

The won reached nearly 1,480 late last month, up almost 10 percent from the 1,350 won traded in June. The average won to dollar exchange rate through November was 1,414 — higher than the 1,399 won quoted in 1998 following the start of the Asian financial crisis that was triggered by a shortage of dollars.

“The won’s move toward 1,500 isn’t due to the Korea-U.S. interest rate gap, nor is it because of foreign investors, as foreign bond inflows remain strong,” said Rhee Chang-yong, governor of the Bank of Korea (BOK), at a news conference last month. “It’s simply because of overseas stocks,” he added, noting that young people buying foreign stocks without fully understanding what they are investing in is “concerning.”

This shift in blame has drawn intense criticism, with many arguing that efforts should instead focus on strengthening the fundamentals of the domestic stock market amid weak economic growth.

Behind the steep depreciation is a supply-demand imbalance in the dollar market, driven mainly by a surge in foreign investment and exporters’ delays in converting their dollar earnings back into won, according to Korea’s foreign exchange authorities.

Finance Minister Koo Yun-cheol also noted last month that the government is open to reviewing tighter tax regulations on foreign investment, although no such measures are currently on the agenda.

Have retail investors been the main contributors to the won’s decline through their large-scale overseas stock investments?

Foreign investment in overseas stocks by retail investors reached an all-time high, but institutional investors have also expanded their foreign stock purchases.

Nonfinancial enterprises, which are largely comprised of retail investors, bought a total of $16.62 billion worth of foreign stocks through the third quarter this year, up 74 percent from the same period a year earlier, according to BOK data.

Foreign stock purchases by the general government, which includes the National Pension Service (NPS), soared 92 percent to total $24.51 billion in the January to September period.

Koreans net purchased a total of $31.6 billion worth of U.S. stocks this year through Friday — surpassing the $10.55 billion in net purchases last year, according to data from Korea Securities Depository.

“We had expected investors to return to the Korean market as the Kospi rose, but that didn’t happen,” said Oh Jae-young, an analyst at KB Securities. “It could be due to their past investment losses in the domestic market, or because they expect a more consistent and steadier rise in stock prices from overseas investment.”

What measures have financial authorities rolled out to tame the weak won?

The Ministry of Economy and Finance, the Ministry of Health and Welfare, the Bank of Korea and the NPS — the world’s third-largest pension fund and a major foreign investor — formed a new consultative body and held its first meeting last month to develop measures to stabilize the won.

The government is pressuring companies to convert earned dollars to won, and is expanding policy fund limits for those that comply. It is also requiring exporters to regularly disclose their dollar earnings and conversions, raising incentives for those that are proactive about converting their dollars.

Brokerages also became a target, as the financial watchdog is tracking down whether appropriate protections are in place for overseas investment. Whether they encouraged leveraged investments in foreign stocks or promoted overseas derivative trading through commission-free events and aggressive marketing will also be under review.

Finance Minister Koo Yun-cheol speaks in a press conference held in Sejong government complex on Nov. 26. The briefing was convened to explain foreign exchange market developments and overall economic conditions. [NEWS1]

Do experts agree that retail investors’ heavy investment in foreign stocks is driving down the value of the won?

Experts agree that large investments in overseas stocks could contribute to the won’s depreciation in the short term, but added that there are more fundamental reasons for the dip.

One factor is the Korea-U.S. interest rate gap.

The BOK’s base interest rate has been higher than the Fed’s for more than three years, as it cautiously watches the movement and impacts of high household debt and weak won. Higher interest rates tend to attract foreign investment, boosting demand for the currency — in this case, U.S. dollars.

Another factor is the low brokerage fees for foreign equity trading, which range from 7 to 25 basis points — comparable to domestic equity trading fees of 1 to 20 basis points, according to Kim Han-soo, Senior Research Fellow at Macro-Financial Analysis at the Korea Capital Market Institute.

Korea's relatively low trading fees are attributed to the centralized depository system operated by the Korea Securities Depository, which serves as an intermediary for foreign equity settlement and custody on behalf of brokerage firms. This is unlike in the United States, where retail investors usually use a custodian service indirectly through their U.S.-based brokerage accounts to invest in foreign stocks.

“The economies of scale in asset custody reduces transaction costs. This institutional convenience allows Korea’s brokerage firms to build infrastructure supporting foreign equity investment, which contributes to lower transactions costs,” Kim said.

What is the outlook for won-dollar movement?

Outlooks vary, with some projecting the won to weaken into the 1,300 range, while others aren’t ruling out the possibility of it breaking 1,500.

Those expecting the won to appreciate believe its value will realign with underlying economic fundamentals.

“The current value of the won is somewhat detached from the fundamentals,” said Oh. “Even considering the increase in dollar demand, near 1,480 won seems too high given the current growth and the size of the profits.”

The central bank in November shifted up the growth forecast for this year from August’s 0.9 percent to 1 percent. Next year’s estimation was also raised from the previous 1.6 percent to 1.8 percent. Also, Korea’s yearly exports are set to reach $704 billion this year, up 3 percent on year and breaking past $700 billion for the first time, buoyed by gains in chips and shipbuilding, according to the Korea International Trade Association.

“So I believe the won will ultimately stabilize at a slightly stronger level, as it converges with economic fundamentals,” Oh added, forecasting it in the high 1,300 won range.

Some forecast a more negative outlook.

“The trend in Koreans’ overseas investments is likely to continue, with next year’s won projected to range between 1,410 at the low end and 1,540 at the high end,” said Wee Jae-hyun, an economist at NH Futures.

“Foreign investors may also continue buying Korean equities, but not in amounts large enough to offset the scale of Koreans’ investments abroad,” he added, noting that the Fed’s rate cuts next year is projected at three times at most.

Korea’s large investment in the United States is another major hurdle.

“Generally, the sector that brings in the largest amount of foreign currency through exports is shipbuilding, not semiconductors or automobiles that have to buy raw materials and run factories abroad,” Wee added. “But the $150 billion private investment required by the shipbuilding sector makes shipbuilders reluctant to convert the dollars into won amid strengthening dollars.”

BY JIN MIN-JI [[email protected]]