Foreign investors and the exchange rate

STEP 1Foreigners grade results in dollars

In Lesson 23 you learned that when the exchange rate number rises, the won weakens. Now let's look at that won from the outside, through the eyes of someone holding dollars.

Who are foreign investors?

The 'foreigners' mentioned in the news are not one person but a group that adds up overseas pension funds, asset managers, sovereign wealth funds, hedge funds and others registered with the Financial Supervisory Service as foreign investors and trading Korean stocks. Together they are called foreign investors. At the end of 2025, Korean listed stocks held by foreigners were worth about KRW 1,327 trillion, 30.8% of total market capitalization. They are big players holding nearly a third of the market, so whether they buy or sell moves the index a lot.

Most foreign investors raise and manage money in dollars (or euros or pounds) and are judged on performance in that currency. So to buy Korean stocks they first convert dollars into won, and when they sell and leave they convert won back into dollars. If the exchange rate moves between those two conversions, their profit grows or shrinks regardless of the stock price.

Dollar-based profit is the product of two things

A foreigner's actual return comes from multiplying 'how much the stock price rose' by 'how much the won's value changed'. The change in the won's value is calculated from the exchange rate. If the USD/KRW rate falls from 1,400 to 1,300, the same KRW 1,400 that used to fetch $1 now fetches about $1.077, so the won's value has risen about 7.7%.

The number in the won account is exactly the same KRW 1.54 billion in all three cases. Yet the foreigner's result ranges from +2.7% to +18.5%. This is why the exchange rate is a 'second stock price' for foreigners.

See it in a chart: breaking down a foreigner's return

Move the stock return and the exchange rate. You can see how the won return (stock price), the currency effect and the USD-based return that multiplies the two change.

Tap 'Stock up but weak won'. Even if the stock rises 10%, if the exchange rate reaches 1,500 the USD-based return is under 3%. From a foreigner's point of view, if the won looks likely to keep weakening, there is less reason to hold Korean stocks even when their prices rise.

STEP 2The tug-of-war between the exchange rate and foreign trading

Now that you know foreigners calculate in dollars, let's follow the loop in which that calculation leads to actual trading, and trading in turn leads back to the exchange rate.

Expectations of a stronger won lead to buying

If foreigners think the won will strengthen, Korean stocks become an asset from which they can expect two gains: 'stock price rise plus currency gain'. Conversely, if the won looks likely to weaken, currency losses eat into that gain even if the stock price rises a bit. So foreigners are sensitive to the 'future direction' of the exchange rate rather than its 'level'. The exchange rate factors you learned in Lesson 24, namely whether the Korea-US rate differential looks likely to narrow, whether exports look likely to grow and bring in dollars, and whether global market anxiety looks likely to drive money into dollars, are weighed by foreigners in the same way.

Trading moves the exchange rate in turn

There is one more loop here. For foreigners to buy Korean stocks they must sell dollars and buy won, so large net buying by itself raises demand for won and strengthens it. Conversely, when foreigners sell stocks and leave, they sell won and buy dollars, so the won weakens. The exchange rate prompts trading, and trading moves the exchange rate again.

Because of this loop, foreign selling and a rising exchange rate often appear as a pair in the news. Rather than one being the cause and the other the result, it is closer to a relationship in which each amplifies the other. One reason the government and the Bank of Korea step in to stabilize the market when the exchange rate moves too fast is to keep this kind of herding from spreading across the whole financial market.

Foreigners don't look only at the exchange rate

Many forces besides the exchange rate drive foreign trading. First, the earnings outlook. The stocks foreigners trade most in the Korean market are large semiconductor names, so the memory price cycle from Lesson 3 greatly influences foreign trading. Second, index weight. When Korea's weight changes in the indexes that emerging-market funds around the world track, the money following those indexes mechanically buys or sells. Third, rebalancing. When Korean stocks rise so much that Korea's weight in a portfolio gets too large, investors sell some to restore the weight regardless of their outlook. Fourth, global risk aversion. As seen in Lesson 24, in a crisis investors sell emerging-market stocks and move into dollar assets, and then selling and a weaker won appear at the same time.

So when reading foreign net buying and net selling, you have to look at the time period too. A day or two of trading often has technical reasons such as futures trading or index adjustments, while a flow lasting weeks to months carries bigger reasons such as the exchange rate and the earnings outlook.

STEP 3The actual record, 2020–2026

Some years moved exactly as the theory says, and others moved the opposite way. Let's check against the real numbers.

Foreign net buying and the exchange rate by year

The bars show each year's net buying by foreign investors on the KOSPI (the main board), meaning purchases minus sales, and the line shows that year's average USD/KRW rate. Tap a bar to read the story of that year.

2022 is a year close to the theory. As seen in Lesson 24, the US raised rates quickly, Korea–US interest rates inverted, and USD/KRW climbed to the 1,440 range at one point in October. Foreign investors net sold KRW 6.8 trillion of KOSPI stocks that year. In 2023, the rise in the exchange rate lost steam and hopes for a semiconductor recovery grew, so foreign investors net bought KRW 11.3 trillion, returning to net buying for the first time in four years.

In 2024 the direction changed within the year. In the first half, foreign investors net bought a record amount for any half-year, but in the second half, worries about the semiconductor cycle were joined by a rising exchange rate, and they sold more than KRW 20 trillion, recording 18 straight weeks of net selling. By year-end, USD/KRW had risen to the 1,470 range.

The first half of 2026 is when the 'vicious cycle' showed up most strongly. Foreign investors net sold KRW 148 trillion of KOSPI stocks in the first half alone, and sold about KRW 93 trillion in the two months from May, when the exchange rate really began to rise. On June 29 they sold KRW 7.756 trillion in a single day, a record for daily net selling. The June monthly average of USD/KRW was about 1,530. Afterward the rate came down to a September monthly average of about 1,360, but foreign investors were still net sellers through August.

There are also years that contradicted the theory. In 2020–2021 the won was generally strong, yet foreign investors net sold KRW 24–25 trillion for two years in a row. As the KOSPI rose sharply, they took profits and cut their weighting, and the so-called 'Donghak ants' (individual investors) absorbed those shares. In 2025 foreign investors again sold more than KRW 9 trillion, but with semiconductor strength lifting the KOSPI 75%, the value of the shares they held nearly doubled. The exchange rate is an important clue, but not the only answer.

For stocks, it goes like this

The fact that foreign trading moves together with the exchange rate can be used in two ways. First, when the exchange rate is rising quickly, large caps with a high foreign ownership ratio, especially large semiconductor stocks and financials, are more likely to feel the supply-and-demand pressure first. Second, once the exchange rate peaks and starts to stabilize, foreign selling can ease and may become a trigger for a return to buying. However, a falling exchange rate does not bring foreign investors back right away; earnings prospects need to support it as well.

You can check daily foreign trading in Flows in Market Data, and see which sectors a weak won currently helps or hurts by looking at the 'Weak won' row in the Impact Map of the Macro Map. The winners and losers of a weak won from Lesson 25 and the foreign-flow pressure in this lesson are cases of the same exchange rate reaching stock prices through different paths, so looking at them together is more accurate.

It does not always move that way. Foreign trading is the result of several overlapping reasons besides the exchange rate, such as earnings prospects, index weight changes, and global risk aversion. Use foreign net buying and net selling as an 'indicator of direction' for reference, and do not make investment decisions on that alone.