Good morning. Earlier this year, there was a strange mismatch in Korea’s stock market and currency. Under normal circumstances, an AI-fuelled equity rally and record-high trade surplus would translate into a stronger local currency. Instead, the Korean won fell to its lowest level against the dollar since the great financial crisis, making it one of the worst-performing Asian currencies in the first half of 2026. 

But the story has now flipped. AI jitters caused the highly leveraged, extremely concentrated Kospi to come crashing down as much as 44 per cent from its high in June to its July low. Meanwhile, the won has jumped 9 per cent against the dollar since the start of July, making it one of the world’s best performers last month. 

The Kospi’s sell-off might have been one of the rare cases where a falling stock market has helped to prop up a currency. The rally itself was part of what pushed the won below what fundamentals justified: global fund managers were using the Kospi’s dizzying ascent as a chance to take profits, selling shares and converting the proceeds back into dollars, as evidenced by heavy foreign investor outflows. A more deleveraged market following the pop has reversed that pressure.  

A rare dollar-selling intervention by Korean authorities two weeks ago has also helped, though intervention effects are usually shortlived. But we have reasonable confidence that the recent appreciation has legs. For one, interest rate differentials between Korea and the US are narrowing. Last month, the Bank of Korea raised rates for the first time in more than three years and signalled that it will probably continue tightening due to rising inflation pressures.  

The AI boom and the successes of Samsung and SK Hynix are another. SK Hynix, which famously completed the largest-ever US IPO by an overseas company last month, has marked most of its proceeds for domestic investment. Samsung, too, has announced a multiyear, trillion-dollar domestic AI build-out plan, which should mean sustained dollar selling. The won, like the stock market, is moving closer to its fundamentals. Email us: unhedged@ft.com 

<img width='1' height='1' style='display:none;border-style:none;' alt=' src='https://images.passendo.com/t/2/56508/charles@pos-hardware.co.uk/5227206314093605/0/0'><img width='1' height='1' style='display:none;border-style:none;' alt=' src='https://images.passendo.com/extt/2/56508/charles@pos-hardware.co.uk/5227206314093605?pid=1'><img width='1' height='1' style='display:none;border-style:none;' alt=' src='https://images.passendo.com/extt/2/56508/charles@pos-hardware.co.uk/5227206314093605?pid=2'><img width='1' height='1' style='display:none;border-style:none;' alt=' src='https://images.passendo.com/extt/2/56508/charles@pos-hardware.co.uk/5227206314093605?pid=3'><img width='1' height='1' style='display:none;border-style:none;' alt=' src='https://images.passendo.com/extt/2/56508/charles@pos-hardware.co.uk/5227206314093605?pid=4'>

Hakyung: Holes in the system

Katie: Net zero is what we need

Daire: ‘A hedge fund playground’