South Korean Won: Policy support and equity rebalancing – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that the Korean Won (KRW) has outperformed peers after authorities intensified stabilization efforts. Measures include new FX rules, tighter oversight of offshore derivatives and FX hedging by the National Pension Service. Haddad adds that equity-driven portfolio rebalancing has weighed on KRW, but this headwind should fade if Korean equities start to lag.

Authorities lean against Won weakness

"USD/KRW dropped as much as 2% after reaching a 17-year high of 1562.20. On Sunday, the Finance Ministry unveiled measures targeting speculative FX trading, tighter oversight of offshore currency derivatives, and probes into potentially illegal FX transactions."

"Today, South Korea’s National Pension Service (NPS) activated FX hedging on its massive amount of overseas assets. This is effectively a form of indirect support for KRW as it generates foreign currency selling and creates additional demand for KRW."

"As Korean equities outperform and their weight in global portfolio rises, foreign investors need to trim positions and repatriate funds, resulting in KRW outflows. By the same token, should the Kospi begin to lag, the rebalancing headwind to KRW is likely to fade."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)