During July, domestic individuals' net purchases of U.S. stocks (purchases minus sales) totaled $4.64 billion, a surge to seven times June's net purchases. It coincided with a falling won-dollar exchange rate and a decline in domestic share prices. In the market, some said, "With the lower exchange rate, there is more leeway to secure dollar firepower, and with domestic stock prices falling, Korean retail investors trading U.S. stocks have judged that there's no fun to be had in domestic stocks."
◇ Shrinking U.S. stock buying reverses from June
According to the Korea Securities Depository on the 5th, Korean retail investors trading U.S. stocks' net purchases of U.S. stocks fell month by month to $6.85 billion in October last year, $5.93 billion in November, and $1.87 billion in December.
In January this year, the figure increased to $5.0 billion, but it decreased to $3.95 billion in February and $1.69 billion in March. In particular, it turned to net selling of $470 million in April, and net selling expanded to $940 million in May. However, it switched back to net buying of $630 million in June, and expanded to $4.64 billion in July.
This trend is analyzed to have been mainly affected by the exchange rate and the domestic stock market. As domestic share prices underwent a correction, more people thought it was time to buy cheaper dollars and invest in U.S. stocks.
The average exchange rate in February, when net buying of U.S. stocks began to shrink, was 1,449.3 won, but it rose by 78 won (5.38%) to 1,527.3 won in June. In contrast, in July, when net buying expanded, it fell below 1,500 won. The KOSPI was in the 5,400 range in early April, the 6,500 range in May, and the 8,700 range in June, then began a correction in July and fell to the 6,000–7,000 level.
The fact that U.S. stock prices are rising also appears to have increased investments by Korean retail investors trading U.S. stocks. While the KOSPI index fell 22.2% in July alone, the Standard & Poor's (S&P) 500 index rose 0.08%, showing relative stability. On the 4th (local time), the S&P 500 and the Dow hit a record high and are showing strength.
◇ "If Korean retail investors trading U.S. stocks increase, it puts upward pressure on the exchange rate"
When Korean retail investors trading U.S. stocks increase, the exchange rate tends to rise. As demand for exchanging into dollars increases, the won weakens. At the end of last year, then–Bank of Korea Governor Rhee Chang-yong said, "If the exchange rate exceeds 1,500 won, the bigger cause is not foreigners but domestic investors' overseas stock investments." The government launched the "return-to-domestic-market account (RIA)" to draw Korean retail investors trading U.S. stocks back to the domestic stock market.
Some note it is hard to see only Korean retail investors trading U.S. stocks, who are individual investors, as the cause of the high exchange rate. Export corporations also did not convert dollars earned overseas into won. In particular, this year, foreign investors' sell-off of domestic stocks affected the exchange rate.
Recently, this situation has somewhat improved. As major corporations sell dollars, the exchange rate is falling. In particular, SK hynix has been actively releasing to the market the $26.5 billion it raised through an American depository receipts (ADR) listing since the 15th of last month.