Growing Concerns Over Foreign Investor Flows Amid Exchange Rate Volatility... "Uncertainty to Persist Until May FOMC"

Sharp Rise in Exchange Rates Ahead of May FOMC
Rising Exchange Rates Adversely Affect Foreign Investment in Domestic Stock Market
Clear Statements on Fed's Additional Tightening Are Key

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] The won-dollar exchange rate has surged again, raising concerns about foreign investor flows in the domestic stock market. Clear remarks from Jerome Powell, the chairman, regarding additional tightening at this week's scheduled U.S. Federal Open Market Committee (FOMC) meeting are expected to eliminate exchange rate uncertainties.

As of 10:29 a.m. on the 2nd, the KOSPI is at 2,679.71, down 15.34 points (-0.57%) from the previous trading day. Although foreigners and institutions were buyers immediately after the market opened, both turned to selling during the morning session. Currently, foreigners are net sellers of 23.8 billion KRW, and institutions are net sellers of 80.2 billion KRW. Meanwhile, individual investors are net buyers of 99.3 billion KRW.

The KOSDAQ is down 9.21 points (-1.02%) at 895.5. Foreigners and institutions are net sellers of 41 billion KRW and 81 billion KRW, respectively, while individual investors are net buyers of 125.6 billion KRW.

The domestic stock market is facing increased concerns over foreign investor flows due to the sharp rise in the exchange rate today. In the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,264.0 KRW, up 8.1 KRW from the previous session. After a slight drop immediately after the opening, the exchange rate rose again to 1,265.4 KRW.

The won-dollar exchange rate fell sharply in the previous trading session but has shown an overall upward trend. It started the year at 1,193.50 KRW, surpassed 1,200 KRW on February 24, and reached a year-to-date high of 1,273.50 KRW on April 28.

Lee Da-eun, a researcher at Daishin Securities, said, "With the FOMC scheduled this week, won depreciation is difficult," adding, "For foreign capital to flow in, exchange rate uncertainties must be resolved, but with the FOMC approaching, it is difficult to resolve these uncertainties."

Kim Dae-jun, a researcher at Korea Investment & Securities, pointed out, "The won-dollar exchange rate is above the 1,250 KRW level," noting, "The second-quarter average is in the 1,230 KRW range, which is higher than the first-quarter average of 2020 when COVID-19 fears spread."

Kim emphasized, "From a market perspective, a rising won-dollar exchange rate, i.e., won weakness, is negative for stock prices. Since overall market profits do not increase with exchange rate rises as expected, to link exchange rates and earnings, one must look at sectors and companies individually rather than the whole."

He added, "In terms of returns, sectors like hardware, telecommunications, food and beverages, and automobiles, which expect profit increases with a rising won-dollar exchange rate, are favorable. However, for automobiles, weight adjustments should be considered with the won-yen exchange rate decline in mind."

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