Strong Yuan and Won Strengthen... Will Foreigners Return?

Signs of Won-Yuan Currency Synchronization
Further Decline Expected in Won-Dollar Exchange Rate
Foreigners' Selling Pressure Eases with 19.3 Billion Won Net Sales Last Week
Potential Inflow of Low-Price Buying Interest

[Asia Economy Reporter Song Hwajeong] As the Chinese yuan shows strength, the Korean won is also following this trend, showing signs of turning strong. Accordingly, attention is focused on whether there will be changes in the behavior of foreigners, who have been continuously selling in the domestic stock market.

On the 31st, in the Seoul foreign exchange market, the won-dollar exchange rate was 1,115.4 won per dollar at 9:05 a.m., down 0.1 won from the previous trading day's closing price. It is interpreted that the yuan's strength is also affecting the won. Park Sanghyun, a researcher at Hi Investment & Securities, said, "Last week, the offshore yuan-dollar exchange rate fell by 1.12% (yuan appreciation), and the official exchange rate fell by 0.69%, showing an ultra-strong yuan," adding, "Along with the global risk asset preference phenomenon and the easing of import price pressures, the People's Bank of China's tolerance for yuan appreciation led to the yuan's ultra-strength."

The previously somewhat loose synchronization between the won and yuan is strengthening again. Researcher Park said, "The yuan-dollar exchange rate falling to the lowest level in three years, in the 6.3 yuan range, acted as a trigger to reinforce won-yuan synchronization," and added, "Since the People's Bank of China is unlikely to actively intervene in the market for the time being, the yuan's strong trend is likely to continue, and the downward pressure on the won-dollar exchange rate will also expand."

This won strength is also expected to affect foreigners' behavior. Last week, foreigners net sold only 19.3 billion won in the domestic stock market. This is a significant reduction compared to the continuous trillion-won scale selling previously. Lee Kyungmin, a researcher at Daishin Securities, said, "The won, which had been weak alone, turning strong suggests that the vicious cycle between massive foreign selling after the resumption of short selling and won weakness is weakening," adding, "Changes are also detected in foreigners' trading patterns, with reduced selling volume and a net buying turn on the 25th after 10 trading days. This change appeared along with the peak of short selling supply and won weakness pressure."

Lee Jaeseon, a researcher at Hana Financial Investment, said, "Won strength will increase the possibility of foreign low-price buying inflows," and added, "Since 2013, the won-dollar range where foreigners' net buying has been actively observed is below 1,160 won."

This content was produced with the assistance of AI translation services.