S. Korea's Won Weakens as Retail Investors Buy U.S. Stocks

Main Points

South Korea's currency stabilization efforts face a major hurdle from its own retail investors, whose record-breaking appetite for U.S. stocks is fueling dollar demand and pushing the won to 17-year lows.

Situation Overview

Despite government incentives to repatriate funds, Korean investors, known as 'ants,' held nearly $171 billion in overseas stocks as of late January. Net purchases of U.S. equities surged to $5.0 billion last month, more than doubling from December, signaling a strong preference for Wall Street.

Economic and Market Impact

This domestic demand for the dollar has been identified as a primary driver of the won's weakness, undermining official policy measures. The trend exposes the limits of existing tools and forces authorities to reconsider strategies for managing currency stability against powerful market-driven outflows.

Summary

The sustained investor confidence in U.S. markets suggests that downward pressure on the won will likely continue. Policymakers face the complex task of balancing currency support with investor sentiment that favors foreign equities for their perceived superior performance.

FAQ

Q: Why are Korean investors buying U.S. stocks?
A: They believe U.S. companies offer better long-term growth and are frustrated by years of poor share performance in the domestic market.

Q: How much have Korean investors put into foreign stocks?
A: They held a record of nearly $171 billion in overseas stocks as of January 29, with net U.S. stock purchases hitting $5.0 billion last month.

Source: Investing.com