South Korea's stock market experienced a currency crisis following a surge driven by AI-related semiconductor demand, with the government vowing action to curb 'excessive volatility' as the won and bonds tumbled in recent days. Through Thursday, the country's benchmark KOSPI index rose 105% in local currency terms since the start of the year, propelled by chip giants Samsung Electronics nearly tripling and SK Hynix climbing over 250%. The rally attracted global capital inflows, but foreign investors subsequently rebalanced portfolios or took profits, selling won and pressuring the currency downward since end-October according to JPMorgan analysts who cited concentration limits among emerging market equity investors. On Friday, the stock market plunged alongside the currency decline. The won depreciation compounds South Korea's challenges in sustaining energy imports amid geopolitical tensions, illustrating how investor sentiment shifts translate into real-world commodity and import cost pressures.
KOSPI Index Surges 105% on Semiconductor Demand
South Korea's benchmark KOSPI index climbed 105% in local currency terms since the start of the year through Thursday, driven by AI-related demand for semiconductors. In dollar terms, the index gained approximately 90% over the same period. Samsung Electronics nearly tripled during this timeframe, while memory chipmaker SK Hynix rose over 250%. The surge reflected global investor appetite for South Korean semiconductor manufacturers benefiting from artificial intelligence infrastructure buildout.
Foreign Investors Liquidate Holdings Since End-October
The stock market rally attracted capital inflows from investors worldwide, but foreign participants began taking profits or rebalancing portfolios to avoid excessive concentration in South Korea's market. JPMorgan analysts wrote Thursday that some outflows may stem from concentration limits among emerging market equity investors and align with won depreciation since end-October. As investors liquidated holdings and moved capital out of the country, they sold South Korean won and purchased other currencies, exerting downward pressure on the exchange rate.
Government Vows Action as Markets Plunge Friday
South Korea's government vowed action to curb 'excessive volatility' as the currency and government bonds tumbled in recent days. On Friday, the stock market plunged, compounding pressure on financial markets. The government signal indicated potential intervention to shore up the currency, serving as a warning to speculators tempted to bet on further declines. The currency depreciation occurs as South Korea faces challenges sustaining energy imports amid geopolitical tensions, demonstrating how investment sentiment shifts affect real-world commodities and import costs.
FAQ
What caused South Korea's stock market to surge since the start of the year?
South Korea's KOSPI index rose 105% in local currency terms through Thursday since the start of the year, driven by AI-related demand for semiconductors. Samsung Electronics nearly tripled and SK Hynix climbed over 250% during this period as global investors poured capital into the country's chip manufacturers.
Why did the South Korean won depreciate since end-October?
The won depreciated as foreign investors liquidated stock holdings and rebalanced portfolios to avoid excessive concentration in South Korea's market. JPMorgan analysts attributed some outflows to concentration limits among emerging market equity investors. As these investors sold won to move capital abroad, the currency faced downward pressure, prompting the government to vow action against 'excessive volatility' on Friday when markets plunged.
