As the AI investment boom reshapes the factors determining exchange rates, the won has strengthened even as South Korea’s KOSPI plunged. The breakdown in the link between the stock market and the foreign exchange market has become increasingly pronounced.
South Korea’s KOSPI has fallen more than 40% from its record high, yet the won has continued to strengthen, as the AI investment boom influences market movements through investor behavior. After the KOSPI surged to 9,385.59 intraday, it was pushed back to 5,593.56 on 30 July, with sharp swings in stock prices occurring alongside movements in the exchange rate.
A new paradigm has taken hold in which investment returns, rather than interest-rate differentials, determine the movement of capital. South Korean retail investors’ net purchases of overseas equities reached $28.3 billion from January 2024 through the first half of 2025, while they were net sellers of domestic equities. The KOSPI’s gains were limited compared with the rises in the S&P 500 and Nasdaq.
The KOSPI reportedly surged from the 2,900 range in June 2025 to the 8,400 range this June, while the spillover from the US AI investment boom drove up semiconductor demand and expanded the profits of Samsung Electronics and SK hynix. This led to the KOSPI’s sharp rise and a substantial rally in the domestic stock market.
Foreign investors’ profit-taking and the restructuring of capital flows are believed to have driven the won higher. As the KOSPI surged, foreign investors’ net selling increased, and the won-dollar exchange rate fell to the 1,400 range. The movement of overseas funds and volatility in the domestic market are emerging as a new mechanism driving the exchange rate.