Foreign investors pulled an unprecedented amount of money from Korean equities in 2026, with UBS Global Research reporting roughly $70 billion exiting in the first half of the year. That outflow is more than three times the roughly $20-something billion withdrawn during the first half of 2020 at the height of the COVID-19 pandemic, even as the KOSPI posted its strongest first-half return since 1999.
May was the standout month, registering $28 billion in net foreign outflows. UBS notes this was an extreme divergence from recent patterns - roughly a 20-standard-deviation departure from the historical relationship between KOSPI returns and non-resident equity flows observed over 2021-2025.
UBS attributes much of the disconnect to market concentration. Two semiconductor companies - Samsung Electronics and SK Hynix - surged about 225% year-to-date, according to the report. That magnitude of single-stock performance likely exceeded exposure limits at many global funds and prompted mechanical portfolio rebalancing, UBS said.
Those two firms accounted for roughly $60 billion of the $68 billion in total foreign equity outflows recorded so far this year, underscoring how a narrow set of winners can translate into broad capital shifts when institutional mandates constrain single-stock weights.
UBS strategists quantify the sensitivity of flows to relative performance: "Every 10% of Kospi outperformance versus EM Asia could trigger an additional ~$15bn of outflows, which is equivalent to a 2% worth temporary tax on the Won," the report said. On this basis UBS projects full-year non-resident equity outflows could reach approximately $120 billion, with another $50 billion expected in the second half.
The Korean currency has felt the impact. UBS estimates the won has absorbed about a 1.4% depreciation for each $10 billion of outflows. Using four internal metrics, UBS screens the won as more than 10% undervalued: real effective exchange rate (REER) versus Korea's export share; JPY/KRW versus cyclicals-to-defensives ratios; USD/KRW relative to US-Korea 10-year real yield differentials; and KRW NEER against terms of trade.
So far, a very large current account surplus has provided a cushion. Korea's surplus is running above 20% of GDP on a three-month moving average basis, roughly four times the 2025 average, which UBS says has helped offset pressure on the currency.
UBS warns that without this cushion the mix of outflows would have had a more severe effect. Annualized non-resident equity outflows of roughly 8.2% of GDP, combined with net direct investment and resident outflows of around 6% of GDP, "could have pushed KRW significantly weaker, or FX reserves materially lower," the report said.
The report also flags the National Pension Service (NPS) as a potentially counterintuitive factor. A shift by NPS toward more domestic equity would not necessarily support the won, UBS says. "If residents’ bid for domestic stock remains very strong, it could displace non-residents holdings," UBS said. The firm nevertheless expects $20-$30 billion of relief from opportunistic NPS foreign exchange hedging.
UBS lays out a set of conditions that would need to be satisfied for the won to move toward its estimated fair value of around 1,400 per dollar. These include a drop in the VKOSPI volatility index from about 70 to the 30-40 range, further policy-rate tightening by the Bank of Korea that markets price to 3.7%, and stabilization in external factors such as Middle East geopolitical risk premia, the Japanese yen, and expectations for U.S. Federal Reserve policy.
Drawing a parallel with Taiwan, UBS notes that when a single large stock breached exposure thresholds in 2024, the result was temporary rebalancing rather than a step-change to persistent structural outflows. The firm suggests Korea's current episode could likewise prove transitory.
Finally, UBS highlights a change in the day-to-day dynamics of flows. Daily non-resident flow volatility has risen to about $1.4 billion in either direction, compared with roughly $0.4 billion during 2021-2025, and that higher intraday swing may become the new norm.