U.S. investors in semiconductor stocks are being urged to monitor currency markets, as recent movements in the South Korean won may indicate waning momentum for chip equities. The won has strengthened against the U.S. dollar over recent weeks following interest rate hikes by the Bank of Korea, a shift that analysts warn could signal reducing foreign investment in U.S. AI-related stocks.
The PHLX Semiconductor Sector Index has already dropped approximately 20% from its peak in June. Michael Kramer, founder of Mott Capital Management, suggests that the declining dollar-won rate reflects a reversal of capital flows from South Korea that had previously bolstered the artificial intelligence trade in American markets. If these inflows continue to recede, semiconductor stocks may face additional downward pressure.
Historically, a rising dollar-won exchange rate has closely tracked the surge in chip stocks during the first half of 2026. Korean investors seeking exposure to U.S. semiconductors were compelled to sell won and buy dollars, driving up the exchange rate. Simultaneously, South Korea’s Kospi benchmark index rose sharply, fueled by domestic AI companies such as Samsung Electronics and SK Hynix, the latter of which recently listed its shares in the U.S.
Data from Macrobond highlights the scale of this capital movement: cumulative South Korean holdings in U.S. equities surged from roughly $190 billion in March 2025 to nearly $800 billion by June 2026. However, by July, those holdings had retreated to approximately $675 billion, marking a decline of about 20% from the June high. Following this pullback, the dollar-won rate fell from approximately 1,442 at the end of July to 1,345 by early September.
Kramer attributes this shift partly to the Bank of Korea’s mid-July interest rate increase, alongside signals of further tightening, which made holding the won more attractive. A subsequent rate hike in late August likely accelerated the repatriation of funds, requiring investors to sell dollars and buy won.
Beyond currency and monetary policy, the trend may also reflect cooling demand in the options market. The Cboe Semiconductor ETF Volatility Index rose in tandem with chip stocks and the dollar-won rate, suggesting strong demand for call options. As implied volatility peaked and subsequently declined alongside the semiconductor sector, it indicates that investor appetite for upside exposure has faded.
While it remains to be seen in hindsight whether foreign capital drove the spring and summer rally, Kramer warns that expectations for a strong fall rebound may not materialize. He noted that further unwinding of positions could potentially push the sector even lower.
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