Buying Foreign Stocks While Piling Into Domestic Shares...Room for a Lower Won Exchange Rate [Weekend Money]

What Equity-Buying Sentiment Says About the Won's Path
"Fair at 1,420 Won, as Low as 1,380 Won"

Could it be that the government's appeal for "Korean retail investors in overseas markets to come back to the domestic stock market" is actually working?

On top of the existing trend in which residents in Korea have steadily been buying foreign stocks, they are now also purchasing domestic stocks on a large scale. Normally, there is a clear direction: either investors reduce their foreign stock holdings and return to the domestic market, or they sell domestic stocks and move into overseas markets. This time, however, they are buying both sides at the same time.

This is different from a phase in which funds rapidly concentrate on just one side. Rather than a move to avoid risk, it is closer to a strategy of holding risk assets across the board. It can also be read as a sign that the market's overall risk appetite is higher than before.

What equity-buying sentiment says about the won's path

On the 12th, as the KOSPI opened at an intraday record high, an employee in the dealing room at Hana Bank's Seoul headquarters was monitoring the stock market and exchange rates. That day, the KOSPI opened at 5,425.39, up 70.90 points (1.32%) from the previous session.

To buy foreign stocks, you need dollars. You have to sell won and buy dollars. Taken on its own, this is a factor that weakens the won.

However, investors are also actively buying domestic stocks at the same time. This means it is not simply a wholesale move to flee from won-denominated assets.

Analysts say this pattern may provide a hint about the outlook for the dollar-won exchange rate this year.

In a recently published report titled "Sentiment toward the Won as Seen through Stock Markets," Moon Daun, a researcher at Korea Investment & Securities, said, "We expect the dollar-won exchange rate to move along a trajectory in which it falls in the first half of the year, then repeatedly partially retraces while sequentially lowering its bottom, and then rebounds in the second half."

The report characterizes this year as "a period in which upside pressure from domestic and external factors is gradually easing." The view is that the extreme aversion to won-denominated assets has softened, and the environment of one-way dollar strength has also somewhat calmed. In other words, the catalysts that could trigger a sharp spike are not as strong as they were in the past.

In short, the scenario assumes a gradual move to lower levels in the first half, while leaving room for a rebound in the second half. It is interpreted as a gentle adjustment in line with improving sentiment, rather than a sharp short-term drop.

Fair at 1,420 won, as low as 1,380 won...Upside pressure is easing

However, the path is unlikely to be smooth.

Moon said, "In the first half of the year, we expect to see a pattern in which the lower bound is pushed down, accompanied by several partial reversals," adding, "In the 1,400-won range, we expect a choppy decline as downside rigidity strengthens."

His explanation places more weight on a bumpy decline path in which the rate fluctuates but gradually moves lower, rather than a steep plunge.

Moon in particular expects downside rigidity to strengthen in the 1,400-won range.

He said, "In the 1,400-won range, we expect a choppy decline as downside rigidity strengthens at every 20-won interval."

This means that when the first two digits change, at levels such as 1,440 won, 1,420 won, and 1,400 won, there is a high likelihood that dollar-buying demand will come in. This suggests that certain price zones could serve as psychological support levels.

The report presents 1,420 won as the current fair level. If conditions turn more favorable, it leaves open the possibility that the lower bound could be pushed down to around 1,380 won at most.

However, the exchange rate is heavily influenced by external factors such as U.S. interest rates, global dollar trends, and geopolitical variables. In particular, changes in expectations regarding U.S. monetary policy are cited as a factor that can swiftly alter the short-term trend.