The Korean won is approaching a 16-year low. Are retail investors chasing US stocks triggering a foreign exchange crisis?

The Korean won is the worst-performing currency in Asia this season, at one point approaching its lowest level in 16 years in recent weeks. Officials, including the Governor of the Bank of Korea, have blamed the depreciation of the won on retail investors’ fervor for overseas stocks, sparking dissatisfaction among investors.

The Korean won plummets, approaching a 16-year low

According to statistics from MacroMicro, the Korean won (KRW) has performed the worst among major currencies over the past three months, depreciating by as much as 5.67%, surpassing the Japanese yen’s 4.89% and the New Taiwan dollar’s 2.38%. In recent weeks, it has at times neared its lowest point in 16 years.

Korean retail investors are buying US stocks in large quantities

Due to Seoul’s sky-high real estate prices and the Korea Composite Stock Price Index (KOSPI) having been sluggish for a decade before the rare bull market expected in 2025, Korea’s large group of retail investors has shifted toward high-risk investments, ranging from cryptocurrencies to leveraged overseas exchange-traded funds (ETFs), in an attempt to create wealth.

According to data from the Korea Securities Depository, this year Korean retail investors have made net purchases of US stocks worth $31 billion, setting a new record high. This figure is nearly triple their purchases in 2024 and more than 12 times the level in the same period in 2019.

Could the retail buying spree of US stocks trigger a “foreign exchange crisis”?

According to Bloomberg, local media have headlined that this move could trigger a “foreign exchange crisis”! Bank of Korea Governor Rhee Chang-yong stated late last month that the “trend” of large numbers of young Koreans rushing into overseas stocks is concerning, and authorities are tightening regulations on leveraged purchases of foreign-listed ETFs.

Retail investors are angry at being blamed for the won’s decline, saying they are easy scapegoats and insisting that other broader factors may play a more significant role in the won’s weakness.

However, some officials have taken a more moderate stance on the issue, such as Financial Supervisory Service (FSC) Director Lee Chan-jin, who said he can “understand” the desire of Korean traders to desperately seek returns.

Retail investors can’t get rich on salaries alone and would rather risk currency losses than miss out on the AI boom

Many retail investors have found that it’s impossible to get rich on salary alone, so they’ve started trading stocks. Even if this results in currency losses, many are afraid to miss out on surges like those in AI. According to The Korea Times, Google’s parent company Alphabet (GOOG) was the top pick among Korean retail investors last month, with net purchases exceeding $1 billion, accounting for 18% of all overseas net purchases. The second most popular choice was the Direxion Semiconductor 3X Leveraged ETF, a triple-leveraged ETF investing in semiconductors, followed by Nvidia and Meta.

Alphabet delivered a return of more than 43% over the past three months, while the semiconductor ETF surged more than 73% over the same period.

This article, “Korean Won Nears 16-Year Low: Could Retail Investors’ Frenzy for US Stocks Trigger a Forex Crisis?” first appeared on Chain News ABMedia.