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Concerns over President Donald Trump’s tariff policies and the rise of Chinese AI startup DeepSeek have led to sustained foreign sell-offs in the Korean stock market. In February, foreign investors offloaded $1.81 billion worth of Korean stocks, marking the seventh consecutive month of net foreign outflows. Meanwhile, Korea’s bond market saw inflows as rising short-term interest rates created arbitrage opportunities.

According to the Bank of Korea, the Korean won remained weak despite a softer U.S. dollar, with the USD/KRW exchange rate hovering at 1,450. The KRW/JPY and KRW/CNY rates also rose by 4.6% and 0.6%, respectively. Analysts attribute this to Trump’s trade policies and concerns over Korea’s economic slowdown, as the country’s export-heavy economy remains vulnerable to the ongoing tariff war, heightening investor risk aversion.

The semiconductor sector has been hit particularly hard, as DeepSeek’s AI advancements raised concerns about industry disruption, further dampening investor sentiment. This has intensified market instability, with major foreign investment banks lowering their outlook on Korea’s economy and corporate earnings.

Despite the persistent capital outflows, some stabilizing factors remain. Credit Default Swap (CDS) premiums have declined, and exchange rate volatility remains manageable. However, the future trajectory of Trump’s tariff policies remains a critical risk factor, suggesting that Korean market volatility could increase further. Investors are advised to remain cautious in navigating these uncertainties.

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