Korean won plummets to a 16-year low! Retail investors rush to buy US stocks worth 31 billion, raising concerns of a foreign exchange crisis

The Korean won is the worst-performing currency in Asia this season, at one point nearing its lowest level in 16 years over the past few weeks. The won has depreciated by as much as 5.67% over the past three months, surpassing the yen’s 4.89% and the Taiwan dollar’s 2.38%. Officials, including the governor of the Bank of Korea, have blamed the won’s depreciation on retail investors’ enthusiasm for overseas stocks, sparking investor discontent. Local media headlines indicate this move could trigger a “foreign exchange crisis.”

Korean Won Depreciates 5.67%, Leads Decline Among Asian Currencies

The Korean won (KRW) has been the worst performer among major currencies over the past three months, with a depreciation of 5.67%, far outpacing the yen’s 4.89% and the Taiwan dollar’s 2.38%. Such a pace of depreciation is extremely rare in peacetime, raising widespread market concerns over Korea’s foreign exchange stability. The won’s exchange rate against the US dollar recently approached its lowest level in 16 years, a level last seen during the 2009 global financial crisis.

The sharp depreciation of the won has had multiple impacts on the Korean economy. First, import costs have risen significantly, especially for energy and raw materials. As a country highly dependent on imports, these costs are ultimately passed on, pushing up domestic inflation. Second, the burden of foreign debt denominated in US dollars has increased, adding to the repayment pressure on Korean corporations and the government. Third, foreign exchange reserves face depletion pressure, as the central bank may need to intervene in the market to stabilize the exchange rate.

However, depreciation isn’t entirely negative. Korea is an export-oriented economy, and large exporters like Samsung and Hyundai gain a competitive advantage when the won weakens. Export goods priced in US dollars become cheaper, helping expand market share. The problem is that the current speed and magnitude of depreciation have gone beyond manageable levels, raising concerns over systemic risk.

Retail Investors’ US Stock Buying Surges 12-Fold, Sets Historic High

(Source: Bloomberg)

With Seoul’s sizzling real estate prices remaining high and the KOSPI having languished for a decade before a rare bull market in 2025, Korea’s large retail investor base has turned to high-risk investments—from cryptocurrency to leveraged overseas ETFs—in a bid to build wealth.

According to Korea Securities Depository data, Korean retail investors have made net purchases of US stocks worth $31 billion this year, setting a new record. This figure is nearly three times their purchases in 2024, and more than 12 times the level seen in the same period in 2019. This explosive growth demonstrates deep disappointment in the domestic market and intense desire for US stocks among Korean retail investors.

Most Popular US Stocks Among Korean Retail Investors

Alphabet (GOOG): Over $1 billion net bought last month, accounting for 18% of all overseas net purchases, with a return of over 43% in the past three months

Direxion Semiconductor 3X Leveraged ETF: Triple-leveraged semiconductor investment, up more than 73% in the past three months

Nvidia (NVDA): Biggest beneficiary of the AI boom, third most popular stock among Korean retail investors

Meta (META): Leader in social media and VR, also attracting large inflows

These investments share a common trait: they are all related to AI and technological innovation. Many retail investors have realized that salaries alone will never make them wealthy, so they started trading stocks—even if it means taking foreign exchange losses, many are afraid of missing out on rallies like AI. Alphabet achieved over a 43% return in the past three months, and the semiconductor ETF soared over 73% in the same period. In comparison, the KOSPI index rose less than 10% during the same period. This huge return gap has further fueled capital outflows.

Central Bank Blames Retail Investors, Sparks Fierce Backlash

According to Bloomberg, local media headlines warned that retail buying of US stocks could trigger a “foreign exchange crisis,” a narrative that has sparked strong dissatisfaction among retail investors. Bank of Korea Governor Rhee Chang-yong said at the end of last month that the trend of young Koreans flocking to overseas stocks is “worrisome,” and authorities are tightening regulations on leveraged purchases of overseas-listed ETFs.

Retail investors are angry at being blamed for the won’s decline, saying they are an easy scapegoat and that broader factors may play a bigger role in the won’s weakness. Many have pushed back on social media, pointing to the real reasons for the won’s depreciation: a strong US dollar, Korea’s slowing economic growth, geopolitical risks, and monetary policy missteps by the Bank of Korea. They argue the $31 billion in overseas investments by retail investors is only one factor, not the main cause.

Analysts note that blaming retail investors for the won’s depreciation is simplistic and misleading. Korea’s foreign exchange reserves exceed $400 billion, and retail investors’ $31 billion in overseas investment accounts for less than 8%. More importantly, institutional investors and companies have far larger overseas investments, but officials rarely mention these greater capital outflows.

However, some officials have taken a more moderate stance. For example, Financial Supervisory Service (FSC) Chairman Lee Chan-jin said he “understands” why Korean traders are desperately seeking returns. This shows there are internal divisions within the Korean government on the issue; some recognize that retail overseas investment is a symptom of deeper economic structural problems, not the root cause.

Structural Issues: Real Estate Bubble and Stock Market Slump

The massive shift of Korean retail investors to US stocks is rooted in deep economic and social issues. Real estate prices in Seoul have reached levels unattainable for the average wage earner—a typical apartment may cost more than 20 times an annual salary. Meanwhile, wage growth in Korea has stagnated, and young people find that normal work and savings will never allow them to achieve financial freedom.

The KOSPI index has underperformed over the past decade, hovering between 2,000 and 3,000 points, well below the all-time high set in 2011. In contrast, the US S&P 500 has more than tripled during the same period. This huge return gap has forced Korean retail investors to look overseas.

The cryptocurrency market was once a hotbed for Korean retail investors, but after major events like the Luna crash, many have shifted to the relatively more stable US stock market. Especially with the rise of AI, tech giants like Nvidia, Alphabet, and Meta have become favorites among global investors—Korean retail investors included.

The Korean government now faces a dilemma: strictly restricting capital outflows may stabilize the won but trigger public discontent and possibly violate international commitments to capital mobility. If they allow funds to flow out freely, depreciation pressure on the won will persist and could trigger a bigger foreign exchange crisis. The real solution lies in reforming the domestic economic structure, making the local stock market more attractive, reducing the real estate bubble, and enabling young people to achieve wealth accumulation through normal channels.