[Click eStock] Why Did KOSPI Fall Despite the Sharp Drop in Won-Dollar Exchange Rate?

Won-Dollar Exchange Rate Hits 1330 Won Level, KOSPI Declines
Traditional Formula Fails Due to Trade Surplus and Rising Profits
Need to Monitor Yen-Dollar Exchange Rate Changes

On the 19th, in the domestic stock market, the won-dollar exchange rate plummeted by 23 won in one day to record the 1330 won level, but the KOSPI fell by 0.8%, with foreigners also recording a net sale of about 110 billion won. This phenomenon broke the previously known formula of “won-dollar exchange rate decline = stock market strength.” Various causes are being cited as the background for this won-dollar exchange rate decline.

Han Ji-young, a researcher at Kiwoom Securities, said, "There is an analysis that caution regarding the scheduled Bank of Japan (BOJ) governor's remarks on the 23rd induced yen appreciation, leading to dollar weakness and a decline in the won-dollar exchange rate, and there is also an explanation that the Chicago Fed president's remarks on concerns about a U.S. recession strengthened expectations for a Fed rate cut, resulting in dollar weakness." Additionally, interpretations suggest that supply and demand factors such as yuan appreciation and long-stop volume (liquidation of dollar purchase positions) also played a role.

The three reasons cited for why the existing formula has not worked well since early this year are: ▲the trade balance continues to maintain a surplus trend, ▲the profit outlook of domestic listed companies is on an upward trajectory, and ▲the structural increase in foreign currency exchange demand due to the rise in overseas stock investments by domestic investors.

Researcher Han said, "While there is a possibility that the correlation between won-dollar exchange rate rises and stock market declines may strengthen again in the future, for now, it seems more meaningful to monitor changes in the yen-dollar exchange rate rather than placing great significance on this formula," adding, "The BOJ governor's remarks on the 23rd may increase volatility in the yen-dollar exchange rate, but the impact of yen appreciation on the stock market is expected to be limited."