While expectations for government policy and a semiconductor boom had been driving a bull run in Korea's stock market, analysts in the securities industry said a stronger won could emerge as a new market variable going forward.
On the 26th, Byun Jun-ho, a researcher at IBK Securities, said in a report titled "After policy and semiconductors comes the exchange rate" that "a stronger won is expected to emerge as a new market variable."
Since the second quarter of last year, expectations for government policy and a semiconductor boom had been leading the domestic stock market. This has continued recently on hopes for the third amendment to the Commercial Act and upgraded semiconductor earnings.
Byun said, "During the roughly nine-month period of the market's sharp rise, a stronger won did not appear, which is highly likely to cause a lagging-phase won appreciation," adding that "this suggests the possibility that domestic and overseas funds will flow further into the stock market."
He added that the exchange rate has already started to fall below the consensus (the average of market forecasts).
He especially expected that once a stronger won begins to appear, favorable supply-demand conditions will persist.
Byun analyzed, "If the won-dollar exchange rate falls more than expected in Mar.–Apr., confidence in a stronger won will widen, and it is judged more likely that buying pressure from financial investment firms will outweigh selling pressure from foreigners."
He also expected that a short-term strengthening of the won could slow the recent selling by foreigners or turn it into net buying.
Byun said, "Also, through the government's Returning Investor Account (RIA) policy, as funds invested in the U.S. stock market flow into the domestic market, individual exchange-traded fund (ETF) buying could strengthen further, likely sustaining the buying trend."
Accordingly, after policy and semiconductors, the exchange rate suggests it could further strengthen favorable supply-demand conditions and act as a new driver of market gains.