The Korean won has jumped 9% against the dollar since the start of July, making it one of the world's best-performing currencies last month, even as the Kospi crashed from its June highs. The two moves are linked: foreign investors selling Kospi shares and converting the proceeds back to dollars had pushed the won down earlier this year, and a deleveraged market has now reversed that pressure.
Kospi's slide lifts the won
The Korean won fell to its lowest level against the dollar since the financial crisis earlier this year, making it one of the worst-performing Asian currencies in the first half of 2026. That happened despite an AI-fuelled equity rally and a record-high trade surplus, conditions that would normally support a stronger currency.
The picture has since flipped. AI jitters sent the highly leveraged, concentrated Kospi down as much as 44% from its June high to its July low. The won, meanwhile, gained 9% against the dollar over the same stretch, becoming one of the world's best performers last month.
Foreign outflows drove the mismatch
The Kospi's earlier ascent was part of what pushed the won below what fundamentals justified: global fund managers used the rally to take profits, selling shares and converting the proceeds back into dollars, evidenced by heavy foreign investor outflows. A more deleveraged market following the sell-off has reversed that pressure, lifting the won as the stock market cooled.
A rare dollar-selling intervention by Korean authorities two weeks ago has also helped, though intervention effects are usually short-lived.
Rate differentials and AI investment support the trend
Interest rate differentials between Korea and the US are narrowing. The Bank of Korea raised rates last month for the first time in more than three years and signalled it will probably continue tightening amid rising inflation pressures.
Domestic AI investment is another factor. SK Hynix, which completed the largest-ever US IPO by an overseas company last month, has marked most of its proceeds for domestic investment. Samsung has announced a multiyear, trillion-dollar domestic AI build-out plan, which should mean sustained dollar selling. The won, like the Kospi, is moving closer to its fundamentals.
Source: FT Unhedged
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