The KOSPI and KRW/USD exchange rate are displayed on the screen at the Hana Bank dealing room in Jung-gu, Seoul, on July 10, when the KOSPI rose by 2.52%. Although the KRW/USD exchange rate fell to 1,501.4 won, foreign investors remained net sellers in the stock market. [Photo = Yonhap News] Last week, the Capital Rotation Radar raised questions about whether foreign selling of spot stocks is slowing down, whether individual buying is driven by long-term value investing or leveraged bets, whether the KRW/USD exchange rate is stabilizing below 1,530 won, whether the Coupang issue will lead to a Section 301 investigation by the Office of the United States Trade Representative (USTR), and whether the relative weakness of the iShares MSCI South Korea ETF (EWY) is coming to an end.

The answer this week can be summarized as: “The exchange rate has eased, but the direction of capital has not yet turned.”

The KRW/USD exchange rate fell to 1,498.5 won on the 8th and closed at 1,501.4 won as of 3:30 PM on the 10th, significantly lower than last week's benchmark of 1,530 won.

However, the strength of the Korean won should not be interpreted solely as foreign buying of Korean stocks. This week's decline in the exchange rate is interpreted as a reflection of risk-aversion sentiment easing, coupled with the anticipation of dollar inflows from SK Hynix's ADR issuance being reflected in the forward exchange market. It is known that some of these funds will arrive around the 15th, with the remainder coming in sequentially through spot and forward transactions between July and August.

Foreigners ended a 13-day selling streak by net buying 335.9 billion won on the 8th, when the KOSPI plunged 5.35%, and continued net buying for two consecutive days through the 9th. However, they returned to net selling of 322.6 billion won on the 10th. The 2.52% rise in the KOSPI on that day was largely driven by institutional investors, who net bought 1.13 trillion won, not by foreigners. While the halt in foreign selling was confirmed, it has not yet led to a sustained trend of return.

The cumulative data is even more sobering.

According to the Institute of International Finance (IIF), $46.1 billion flowed out of emerging stock markets in June, with $30.5 billion of that outflow coming from South Korea—the largest amount in about 25 years. Conversely, $28.3 billion flowed into emerging market bonds.

Global capital did not abandon emerging markets entirely; rather, it shifted from volatile stocks to bonds. The nature of individual buying is also difficult to classify as simple long-term value investing.

When foreigners net sold 2.9 trillion won on the 7th, individuals net bought 3.2 trillion won, and the KOSPI margin debt balance neared an all-time high. Pointing to the fact that single-stock leveraged ETFs can exacerbate volatility, the government is also discussing measures to mitigate these side effects.

The USTR Section 301 issue related to Coupang must also be viewed with nuance.

While a petition regarding "South Korea's acts, policies, and practices related to Coupang" has been posted on the USTR website, no date for the commencement of an investigation has been announced, unlike other cases that have entered formal proceedings. A petition being listed within the USTR's portal is not the same as the U.S. government launching a formal investigation.

The EWY, an ETF related to South Korea, saw its net asset value rebound by 1.09% on the 10th. However, this was insufficient to offset the 7.6% weekly decline in the KOSPI. It is difficult to conclude that the relative weakness of Korean assets has ended based on a single day of rebounding.

The theme of this week's trend is “Exchange rate stabilization without the return of foreign investors.”

The won has strengthened, but foreign investor demand has not improved. The dollar supply expectations that moved the exchange rate and the capital flows buying Korean stocks followed different paths.

The question for this week is as follows:

“Is the strength of the won a signal of foreign investors returning to Korean assets, or is it a temporary supply-demand effect created by the SK Hynix ADR?”

The answer thus far leans toward the latter. There will only be a basis to judge that the direction of capital has shifted once the exchange rate remains stable around 1,500 won even after the ADR-related dollar supply effect fades, and when foreign net buying of spot stocks continues alongside futures buying for about three days.

The one-sentence conclusion is this:

“The exchange rate has dropped below 1,530 won, but foreign weighting in Korean stocks has yet to recover.”

We must avoid the exaggeration of declaring the return of foreign investors based solely on the decline in the exchange rate. Exchange rates are driven by multiple variables, including the trade balance, corporate dollar selling, forward transactions, and interest rate outlooks. Exchange rate stability may be a necessary condition for the return of foreign investors, but it is not a sufficient one.

There are five checkpoints for next week:

First, verify whether the KRW/USD exchange rate remains stable around 1,500 won even after the ADR-related dollars actually begin to enter the country.

Second, observe whether foreign net buying of both spot and futures continues in tandem for about three days.

Third, monitor whether inflows into individual margin debt and single-stock leveraged products are slowing down.

Fourth, check whether the EWY ends its trend of performing weaker than other emerging market ETFs.

Fifth, distinguish whether the USTR issues a separate notice to transition the Coupang petition into a formal investigation.

※ Major data sources: Korea Exchange, Seoul Money Brokerage Services, Institute of International Finance, Office of the United States Trade Representative, BlackRock iShares. Domestic market figures are as of the closing prices on July 10, 2026.

※ This material is for reference and analysis of market trends and is not a recommendation to buy or sell any specific financial product.