Behind the Won's Depreciation: Korean Retail Investors Frenziedly Buying Overseas Stocks
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The Korean won's New Year is anything but calm. After a brief rebound due to government intervention at the end of 2025, the won returned to its depreciation path in early 2026.
According to Chasewind Trading Desk news, on January 15, BofA's research team published a report noting that after the fleeting rebound in early 2026, the won resumed its downtrend. The root cause lies in Korean retail investors restarting their frenzied buying of foreign stocks, especially US shares.
(Korean retail investors’ interest in overseas stocks is mainly concentrated in US stocks)
In just the first 10 days of 2026, there was a net purchase of $2 billion in foreign stocks. The outflow of funds is so significant that Korea’s trade surplus and the open concern from the US Treasury Department could not offset its impact.
BofA believes the won’s exchange rate is now deeply linked to Korean retail investors’ cross-border investment impulses. Its future movements are no longer determined solely by macroeconomic data.
Unless the Korean government reverses retail capital flows through tax policies, or a significant correction in US tech stocks triggers capital repatriation, the won will remain under pressure. Although the US dollar against the won recently rose to 1473.56, BofA maintains a year-end target exchange rate of 1395.
Korean Retail Investors: The Undisputed Dominators of the Exchange Rate
After trading resumed in 2026, Korean retail investors immediately restarted a buying spree of US stocks.
The brief rebound of the won at the end of December happened precisely while retail fund outflows slowed during the Christmas holiday. As soon as trading resumed in the New Year and retail buying returned, the won's rally instantly reversed.
(As retail outflows continue, the won resumes its weakening trend)
The purchase list for the first two weeks of 2026 shows Tesla at the top with $452 million, followed by Direxion's Tesla 2x leveraged ETF ($323 million), Google Class A ($195 million), Micron Technology ($188 million), and Vanguard S&P 500 ETF ($160 million).
(Top ten listed companies bought by Korean retail investors, net purchases in 2026)
Balance of payments data further confirms imbalances in forex supply and demand.
Data shows Korea possesses a strong current account surplus, reaching $12.2 billion by November 2025. However, dollar sales by exporters via trade surpluses cannot match the massive dollar buying power from retail investors, National Pension Service, and other institutions.
During the same period, Korean retail investors’ outward securities investments totaled $11 billion, making them the largest single contributor to the financial account deficit that month—far exceeding the National Pension Service’s $4.2 billion and asset management companies’ $3.9 billion.
(Detailed data on Korea's international balance of payments)
Meanwhile, in November, foreign investors bought $9.6 billion in Korean government bonds, but ultimately had almost no effect on the won, since most transactions are hedged via FX forward contracts and do not generate actual demand for the won.
In contrast, retail purchases of foreign stocks are generally unhedged, constituting a direct purchase of US dollars.
Turning Point for the Won: Taxes and a US Stock Crash
At the end of 2025, the Korean government temporarily lifted the won through verbal intervention and monetary support. US Treasury Secretary Scott Besant also publicly stated in a meeting with Korea’s Deputy Prime Minister that the weak won was “inconsistent with Korea’s strong economic fundamentals.”
However, these external pressures and policy actions proved to be short-lived.
The report asserts that as long as the core drivers of retail fund outflows remain unchanged, any intervention can only temporarily slow the USD/KRW uptrend without reversing its direction.
(Compared to the past five years, Korean investors' flows into foreign stocks still maintain rapid growth momentum)
The true meaning of political pressure is that it increases the likelihood of Korea introducing more substantive policies and reduces the tail risk of USD/KRW breaching key psychological levels such as 1500.
The report makes clear that the most effective way to change the current situation is through tax policy.
Currently, Korean retail investors must pay a 22% capital gains tax when selling foreign stocks. On December 23, 2025, the government already reduced the relevant tax rate. If further tax incentives are introduced (such as partial exemptions upon sale), it may encourage capital to return.
Another potential catalyst comes from the market itself: Korean retail investors' foreign stock holdings are highly concentrated in US tech stocks.
Therefore, any major correction in US tech could automatically trigger large-scale profit-taking and capital repatriation, suddenly and powerfully boosting the won.
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