Rising KRW Exchange Rate Triggers Foreign Selling, Currency Losses Key

TL;DR

• KRW depreciation (rising exchange rate) can create currency losses when foreigners convert KRW assets into their home currency, prompting selling.
• Stock intrinsic value and currency risk are assessed separately, and liquidity, hedge costs, and portfolio rebalancing are main variables.

Definition: Exchange Rate and Foreign Flow Relationship

A rising exchange rate means foreigners receive a worse conversion ratio when exchanging KRW assets into USD, EUR, or other home currencies. Foreign flows include not only buy and sell volumes but also currency gains or losses in conversion and whether positions are hedged.

Why It Matters

Foreign capital has a large impact on the Korean market. Large foreign withdrawals reduce liquidity and can increase price volatility, and institutional repositioning can create sector imbalances. Rapid exchange rate changes also alter foreigners contribution to real returns, affecting portfolio allocation.

Numerical Example: Currency Impact with Hypothetical Numbers

Assume a foreign investor bought shares of company A at 10,000 KRW for 1,000 shares (total 10,000,000 KRW). The purchase exchange rate is assumed to be 1 USD = 1,000 KRW.

• Purchase cost in USD: 10,000,000 KRW ÷ 1,000 KRW/USD = 10,000 USD

If KRW weakens and the exchange rate becomes 1,100 KRW while the share price is unchanged,

• Amount on sale in USD: 10,000,000 KRW ÷ 1,100 KRW/USD ≈ 9,090.9 USD
• Currency loss: about 909.1 USD (about 9.1%)

Thus, even with an unchanged stock price, exchange rate moves can produce losses and create selling incentives when the rate rises. Hedging can reduce currency losses but entails hedge costs and execution risk.

Common Misconceptions and Notes

• Misconception 1: Rising exchange rate equals guaranteed foreign mass selling

The reality depends on whether investors are hedged, their investment horizon (short-term trading vs long-term investing), and position size.

• Misconception 2: Only foreign selling causes price declines

Foreign flows are only one factor; corporate earnings, interest rates, and domestic and international political and economic variables also play roles.

• Misconception 3: Exchange rate impact is determined only by simple conversion gains and losses

Dividends, capital gains tax, local regulations, and transaction costs are also considered. Check latest exchange rates and tax rules with brokerages or tax authorities.

When needed, checking sector-level foreign ownership and tools like 내 종목 레이더 can help verify flows.

This article is for informational purposes and is not investment advice.