On the final trading days of February 2026, South Korea’s financial markets found themselves at the heart of a whirlwind—one marked by record-breaking foreign sell-offs, a surprising turn in currency trends, and a global investor frenzy for Korean semiconductor stocks. For market watchers, the numbers alone were enough to raise eyebrows, but the intricate dance of money, policy, and investor behavior told a much deeper story.
On February 27, the KOSPI, South Korea’s main stock index, closed at 6,244.13—down 63.14 points, or 1.00%, from the previous session, according to Yonhap Infomax. Meanwhile, the KOSDAQ index, home to smaller and tech-driven companies, managed a modest rise of 4.63 points (0.39%), ending at 1,192.78. Yet, it was the currency market that truly defied expectations: the Korean won closed the week at 1,439.7 per U.S. dollar, up 13.9 won from the previous day, but still notably lower than the month’s earlier highs.
What made February so remarkable was the scale and impact of foreign investment outflows. Foreign investors offloaded a staggering 21.1 trillion won in Korean stocks—by far the largest monthly exodus on record. By comparison, the previous high occurred in November 2025, when foreigners sold 14.4 trillion won. Back then, the exodus sent the won tumbling from the 1,420 range to nearly 1,470 per dollar, a jump of about 50 won. Logically, with even greater selling pressure in February 2026, one might expect the won to weaken further.
Yet, the opposite happened. Instead of spiraling upward, the KRW/USD exchange rate actually fell by about 30 won from a high of 1,470 to the upper 1,430s. This counterintuitive move puzzled many, as foreign stock sales typically translate into demand for dollars—pushing up the exchange rate. So, what changed?
Part of the answer lies in the behavior of domestic investors. In both November 2025 and February 2026, Korean individuals and institutions were busy snapping up U.S. stocks—$5.9 billion in November and $4 billion in February, according to market data. Early in February, local investors were buying more than $600 million in American equities daily, but as the month wore on, that appetite waned. By the end of February, some days even saw net sales of overseas shares, especially as U.S. markets underperformed relative to the surging Korean bourse. This ebb in outbound investment helped ease upward pressure on the dollar-won rate.
But there’s more to the story. The Korean won’s resilience was also buoyed by a shift in corporate behavior and market sentiment. As the Bank of Korea’s Governor, Lee Chang-yong, noted during a February 26 press conference, "The belief is taking hold that the exchange rate will not rise to the 1,500 won level, so companies have started selling their dollar holdings, and that’s lowering the exchange rate as a supply factor." He added, "Even with the strong dollar and weak yen, we’re seeing a strengthening won, which suggests a change in supply-demand dynamics." (Yonhap Infomax)
Exporters, especially those riding the wave of a semiconductor-led boom, began actively selling dollars, further strengthening the won. The KOSPI’s impressive rally, driven by robust chip exports, reinforced expectations that Korea would see increased dollar inflows in the months ahead. This, in turn, made investors more confident in the won’s prospects.
Looking forward, many market participants expect the won to remain on a downward trajectory against the dollar—at least for now. While geopolitical uncertainties, such as ongoing U.S.-Iran tensions, remain on the radar, a major structural change is on the horizon: the inclusion of Korean government bonds in the World Government Bond Index (WGBI) starting in April 2026. Analysts predict this move will attract significant overseas investment, bringing in fresh dollar supply and exerting additional downward pressure on the exchange rate. As Baek Seok-hyun, a research fellow at Shinhan Bank, put it, "Foreigners have sold Korean stocks for eight consecutive trading days, yet the exchange rate keeps falling. Whether or not foreigners buy Korean stocks, the impact on the exchange rate is not what it used to be." He added, "Korean government bonds will be included in the WGBI for eight months until November this year, and it’s estimated that nearly $400 million per day in tracking funds will flow in, which will support the won." (Yonhap Infomax)
The semiconductor sector, meanwhile, has become the epicenter of global investor enthusiasm. Nowhere is this more evident than in the performance of the "China-Korea Semiconductor" ETF, listed on the Shanghai Stock Exchange. On February 26, 2026, this ETF soared 9.64% to close at 4.321 yuan, nearly hitting its daily upper limit of 4.335 yuan. Trading volume was extraordinary, reaching 8.699 billion yuan (about 2 trillion won). Just a year earlier, on February 27, 2025, the ETF was trading at 1.636 yuan—a jaw-dropping increase of over 164% in twelve months. Even compared to December 30, 2025, when it was priced at 2.577 yuan, the ETF has risen by more than 65%.
This ETF, launched in November 2022 and managed by China’s Huatai-PineBridge, is the only Korean-related investment product available to mainland Chinese investors on their domestic exchanges. Its portfolio is heavily weighted toward Korean chip giants Samsung Electronics (16.31%) and SK Hynix (15.45%), with these two together making up over 30% of the fund. The rest includes a mix of Korean firms like LIG Nex1 and DB HiTek, as well as Chinese semiconductor players such as SMIC and Cambrian.
Why is this ETF drawing such feverish demand? As a spokesperson from the local financial investment industry explained to Munhwa Ilbo, "China strictly controls capital outflows, so unless individuals open accounts overseas, it’s not easy to invest directly in foreign stocks. That’s why demand for Korean semiconductor investment is concentrated in this ETF." In short, Chinese investors hungry for a piece of Korea’s chip success have few options—and this ETF has become their go-to vehicle.
The Korean stock market mania isn’t limited to China. In the United States, the iShares MSCI Korea ETF (EWY), a popular way for global investors to access Korean equities, saw tens of billions of dollars in net inflows in the month leading up to February 28, 2026. This surge reflects the world’s growing appetite for Korean assets, particularly as the nation’s tech sector continues to outperform.
The confluence of these factors—record foreign sell-offs, resilient currency trends, and a global chase for Korean semiconductor exposure—has created a unique moment for South Korea’s markets. Investors, policymakers, and corporate leaders alike are watching closely, knowing that the next chapter could be just as unpredictable as the last.
As the dust settles on a historic February, one thing is clear: South Korea’s financial markets are more interconnected with the world than ever before, and the forces shaping them are anything but simple.