Soaring Dollar... What Is the Impact of Foreign Investors' Supply and Demand on the Stock Market?

Dollar Value Hits Highest in 13 Years and 4 Months

[Asia Economy Reporter Ji Yeon-jin] The 'strong dollar' has emerged as the biggest variable in the domestic stock market. As the won-dollar exchange rate soared to its highest level in 13 years, it is analyzed that foreign investors' supply and demand, driven by the dollar's super-strong trend, are holding the key to the domestic stock market.

On the 22nd, in the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,335.5 won, up 9.6 won from the previous trading day's closing price of 1,325.9 won. This is the first time this year that the exchange rate has risen to the 1,330 won level, surpassing the previous monthly high of 1,326.70 won recorded on the 15th of last month. It is also the highest level in 13 years and 4 months since April 29, 2009 (1,357.5 won).

On the same day, the KOSPI index started at 2,467.38, down 25.31 points (1.02%). It is analyzed that the European energy crisis, which fueled the strong dollar, heightened concerns following Germany's inflation data announced over the past weekend, pulling the index down. Germany, the largest economy in Europe, saw its producer price index (PPI) rise 5.3% month-on-month in July, increasing inflation worries. The recent simultaneous rebound in global stock markets reflected expectations that inflation had peaked, as international oil prices, which had soared earlier this year, declined. However, with heating demand concentrated in the upcoming winter, international oil prices are expected to rise again.

In the domestic stock market, after falling to the 2,200 level in early last month, the market rebounded and recovered to the 2,500 level last week. During this period, foreign investors purchased more than 4.3237 trillion won worth of domestic stocks, driving the KOSPI's rise. Considering that institutions and individuals sold a net 4.3138 trillion won and 24.2 billion won respectively, foreign investors are the main contributors to this bear market rally. This buying trend is analyzed to be due to the stock prices becoming cheaper amid the ongoing market adjustment since the beginning of the year and the recovery of stock investment sentiment following the decline in international oil prices.

During this period, the won-dollar exchange rate maintained a strong dollar above 1,300 won. Typically, foreign investors sell domestic stocks when the dollar is strong and buy dollars. When the dollar's value rises, selling stocks to hold dollars can yield foreign exchange gains. Therefore, if the strong dollar trend continues, foreign investors, who hold the key to the domestic stock market, are likely to switch to selling. Kim Dae-jun, a researcher at Korea Investment & Securities, said, "The supply and demand environment may be unfavorable for the Korean stock market, and the biggest concern is the trading stance of foreign investors." He added, "If the dollar strengthens and the won-dollar exchange rate rises, the Korean stock market may not be an attractive investment destination for foreign investors."

The foreign ownership ratio in the domestic stock market is at a low level of 29.5%. On this day, foreign investors in the KOSPI market switched from net selling immediately after the opening to net buying during the session, limiting the index's decline. Ahn Young-jin, a researcher at SK Securities, said, "Considering the recent trend, the prices foreign investors face are cheaper, and the supply and demand are essentially empty." He added, "The key to the stock market is that foreign investors are targeting the attractiveness of cheap exchange rates and empty supply and demand."

However, Ahn predicted that the dollar's value could rise further due to Europe's energy shortage and China's economic slowdown, which could hamper foreign investors' supply and demand.

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