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Kospi continues to set record highs despite weak won. But why?

Published: 12 Jan. 2026, 19:43

The Kospi is seen at 4,624.79 points on an electric board in Hana Bank's trading room in Jung District, central Seoul, on Jan. 12, up 38.47 points, or 0.84 percent, from the previous trading session. [YONHAP]

The Kospi closed above the 4,600 mark for the first time ever on Monday, defying the high won-dollar exchange rate and continuing its record-setting run.

The Kospi finished at 4,624.79, up 38.47 points, or 0.84 percent, from the previous trading day, according to the Korea Exchange. This marked the seventh straight session of record closes since the first trading day of the year on Jan. 2. During Monday's session, the index reached a high of 4,652.54, surpassing the previous intraday record of 4,622.32 set last Thursday.

A positive mood that began on Wall Street spread to the Korean market. On Friday, the Dow Jones Industrial Average rose 0.48 percent, and the S&P 500 climbed 0.65 percent, both closing at record highs. The muted market reaction to the U.S. employment report and a delay in the Trump administration's tariff ruling fueled risk-on sentiment.

In contrast, the won touched the 1,470 mark against the dollar during the session, continuing the exchange rate's increase for the eighth consecutive trading day.

It is unusual for a country's stock market to boom while its currency weakens against the dollar. When the Korean stock market is booming, it is typically accompanied by foreign buying, which tends to push the exchange rate down. Conversely, when the exchange rate rises, foreign investment tends to retreat, as the value of won-denominated assets declines in dollar terms.

The reasons behind the decoupling of the won and Kospi are complex. One explanation is persistent overseas investment by Korean retail investors.

The Wall Street sign hangs outside the New York Stock Exchange building in New York on March 11, 2025. [REUTERS/YONHAP]

From Jan. 1 to Friday, individual investors in Korea net-purchased $1.94 billion worth of U.S. stocks — the highest figure for any comparable period since data collection began in 2011, according to the Korea Securities Depository and the Bank of Korea. The amount is also 43 percent higher than the same period last year.

This suggests that the recent increase in the won-dollar exchange rate is driven more by changes in supply and demand in the currency market than by the Kospi’s rally.

The fact that the market’s rally is led by major exporters — who benefit from a higher won-dollar exchange rate — also plays a role. Key gainers include Samsung Electronics, SK hynix, Hyundai Motor and stocks in the shipbuilding and defense sectors.

While Korea’s shift toward diversified global production has lessened its dependence on exchange rates, a higher won-dollar exchange rate still boosts won-denominated operating profits. Many analysts view the current rally as being driven more by earnings growth than by currency risks.

Structural changes in the Korean stock market are also contributing. Even when foreigners sell, institutional and retail investors are actively buying high-performing stocks, providing strong support for the index. Some analysts argue that the won-dollar exchange rate is now more closely tied to the interest rate gap between Korea and the United States than to the stock market.

Customers at a currency exchange in Jung District, central Seoul, are seen on Jan. 7. [NEWS1]

“Traditionally, U.S. interest rates are raised when the U.S. economy is doing well,” said Baek Seok-hyun, an economist at Shinhan Bank. “At such times, countries like those in Europe and Japan often sell their own currencies and buy U.S. Treasury bonds, leading to currency depreciation.”

Interpretations may vary, but many experts agree that a “new normal” is taking shape.

“Investor expectations for Korean semiconductors are acting almost out of inertia and driving up the Kospi,” said Kim Hak-kyun, head of research at Shinyoung Securities. “We’re entering a new phase where Korean households are voluntarily diversifying their portfolios by investing in U.S. stocks, and the decoupling between the exchange rate and stock prices is becoming more pronounced.”

Meanwhile, in Monday’s trading, stocks in shipbuilding, defense, machinery and nuclear energy continued to climb due to geopolitical tensions and industry-specific tail winds. Construction rose 8.5 percent, metals 3.4 percent, machinery and equipment 3.3 percent and transportation and warehousing 3.1 percent.

Investor sentiment toward nuclear energy stocks was also boosted after Meta, the operator of Facebook and Instagram, signed several large-scale power generation contracts with nuclear companies. Hyundai Engineering & Construction, with capabilities in nuclear plant construction, jumped 20.18 percent, while nuclear equipment maker Doosan Enerbility rose 4.63 percent.

Among the “big two” in semiconductors, Samsung Electronics dipped 0.14 percent to close at 138,700 won, while SK hynix rose 0.67 percent to 740,900 won, suggesting a brief pause after their recent rallies.

Surrounding liquidity also appeared to be heating investor sentiment. The balance of cash management accounts (CMA), which allow for easy deposits and withdrawals, surpassed 102 trillion won ($69.4 billion) as of Friday. The balance of margin loans — funds borrowed to invest in stocks — also hit a new all-time high at 28.35 trillion won. An increase in such funds suggests growing investor expectations for further gains.

An employee counts U.S. dollar bills at Hana Bank’s Counterfeit Response Center in Jung District, central Seoul, on Jan. 6. [NEWS]

Still, there are growing concerns over the rapid pace of the rally and the excessive concentration in semiconductors.

“I feel like we’re trying to fit reasons to a result,” said an executive at a brokerage, who asked for anonymity. “Honestly, I don’t really know why this is happening.”

“The upcoming earnings season will be the first real test, as we’ll see how companies actually present their forecasts for the year,” said Hwang Seung-taek, head of research at Hana Securities.

“In the short term, some correction of the extreme bias is inevitable,” said Lee Kyung-min, head of FICC research at Daishin Securities. “Foreign investors have already started to sell semiconductors and automobiles since late last week, and the buying momentum is expected to shift to other sectors after short-term fluctuations.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [[email protected]]