[Deep Dive] KRW/USD Hits Record Highs: Impact on Foreign Capital and the Stock Market

Background of the Exceptional KRW/USD Surge

As of June 2026, the KRW/USD exchange rate has broken multi-decade highs, creating significant ripple effects across the financial markets. The U.S. Federal Reserve's sustained high-interest-rate policy, coupled with geopolitical tensions, has solidified the global strength of the dollar. In particular, risk aversion toward emerging market assets has led to a pronounced depreciation of the Korean won.

Structural Shifts in Foreign Supply and Demand

The surging exchange rate directly impacts the supply and demand dynamics of foreign investors in the domestic stock market. The primary drivers include:

• Increased Foreign Exchange Loss Risk: When the won depreciates against the dollar, foreign investors face losses in dollar terms even if stock prices remain unchanged. During rapid exchange rate spikes, preemptive selling occurs to minimize these potential losses.
• Vicious Cycle of Capital Outflow: Large-scale foreign equity sell-offs and subsequent demand for dollar conversion create a net buying pressure for dollars in the foreign exchange market, further fueling the exchange rate surge.
• Downward Pressure on Large-Cap Stocks: Foreign capital outflow is typically concentrated in top-tier KOSPI companies by market capitalization. This drives down the broader index and sharply dampens overall market sentiment.

Polarization of Corporate Earnings: Exporters vs. Domestic Demand

Independent of macroeconomic index declines, distinct polarization is emerging in sector-specific earnings.

The Currency Effect on Export-Driven Companies

Key export industries, such as semiconductors and automobiles, are benefiting from the weak won. The KRW-converted value of export payments received in dollars increases, leading to improved operating margins. Upward revisions in the earnings forecasts for major exporters reflect this currency effect.

Cost Burdens for Domestic and Import-Dependent Firms

Conversely, sectors with high reliance on raw material imports are experiencing surging cost burdens. The rising exchange rate exacerbates the interest burden on dollar-denominated debt and inflates import prices, acting as a primary driver of deteriorating profitability.

Market Outlook and Strategic Approach

The current exchange rate level reflects structural imbalances in the global macroeconomy rather than mere supply and demand factors. While the trend of foreign net selling is likely to persist in the short term, earnings improvements among exporters will provide downward rigidity to the index. Navigating this volatility requires a close analysis of individual companies' foreign currency debt ratios and export exposure.