South Korea’s AI chip surplus should support the won, but Koreans’ heavy buying of US technology shares is draining the currency the other way
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South Korea sells the world its AI memory chips and runs a healthy trade surplus, yet its currency sits near a 17-year low. The explanation is a capital-account drain that the same AI boom is driving, as Korean savers pour money into American technology shares.
A trade surplus is supposed to support a currency, which makes South Korea’s predicament a useful puzzle. The country is the world’s dominant supplier of AI memory chips, its exports are strong, and yet the won has been pinned near 1,520 per dollar, close to its weakest level since 2009. A healthy current account is meant to prevent exactly this. Something on the other side of the ledger is overwhelming it.
That something is the capital account. The chip exports driving Korea’s trade surplus have not been enough to offset Koreans’ own investments in foreign securities, above all the US stock market, which is itself being lifted by the AI boom, the research firm ISI noted. Korean residents bought $129.4 billion of overseas securities between January and November of last year, Trading Economics reported, a flow large enough to create a persistent supply-demand imbalance in the currency market. Money earned selling chips abroad is leaving again to buy Nvidia, Microsoft and the rest, and each round trip sells won and buys dollars.
One Boom, Two Opposite Pressures
This is the paradox at the centre of Korea’s position. The AI build-out shows up in the country’s accounts twice, and with opposite signs. On the trade side it is a tailwind, filling the order books of Samsung Electronics and SK Hynix. On the capital side it is a drain, as households and institutions chase the same theme through American equities and send capital out of the country. The net effect on the won has been downward, because the outflows have been the larger force.
A weak currency would be less of a worry were it not feeding back into prices. The won’s slide raises the cost of imported energy at a time when oil has already been pushed higher by conflict in the Middle East, which adds to domestic inflation. That, in turn, strengthens the case for the Bank of Korea to raise interest rates, the very pressure that has made Korean government bonds the worst-performing sovereign debt in the world this year. Currency, inflation and bonds are all being pulled by the same underlying force.
Authorities Reach Past The Usual Tools
Conventional intervention has had limited effect. Despite repeated verbal warnings and a rare joint inspection of banks’ foreign-exchange operations by the central bank and the Financial Supervisory Service, the first such move since 2010, the won has stayed under pressure, the Korea Times reported. Analysts increasingly argue that a rate increase is the strongest tool policymakers have left to defend the currency. Authorities have also widened their backstops, tripling the ceiling on foreign-exchange stabilisation bonds to $5 billion for the year and preparing to expand a 100 trillion won stabilisation programme, according to Trading Economics.
The episode is a reminder that a strong export story and a strong currency are not the same thing, and that in an age of globally mobile savings the capital account can drown out the trade account. Korea is running a world-class chip surplus and watching its currency weaken anyway, because its own savers are exporting capital to the same AI trade that supports its factories. For investors trying to read the won, the lesson is to watch where Korean money is going as closely as they watch what Korea sells. Until the pull of US technology shares fades or the Bank of Korea acts decisively to change the calculus, the chip surplus alone looks unlikely to turn the currency around.