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THE BETTER THE KOSPI, DOES THE WORSE FOR THE WON

Korea's won is about to be traded 24 hours a day, and for traders getting up to speed, Societe Generale have a Thursday note showing Korean stocks' outperformance could be a source of weakness for the won.

The logic is that the Kospi's .KS11 year-to-date 85.5% gain is so much more than other benchmarks -- not to mention Samsung Electronics' 005930.KS 150% increase and SK Hynix's 000660.KS 198% gain -- that foreign investors keep having to sell to avoid having too much exposure to any one name or index.

And that matters for the won, Soc Gen says, because "FX dynamics are increasingly driven by portfolio adjustment flows rather than traditional trade balances."

That's a result of the pace of growth in foreign equity holdings significantly outstripping improvements in Korea’s trade and current account balances.

If foreigners were buying more Korean stocks, then that would obviously be good news for the currency, however, Soc Gen says, rebalancing is outweighing incremental foreign equity inflows and "foreign equity rebalancing at this stage is skewed toward reducing exposure".

As a result they have revised up their USD/KRW forecast to 1500 in 3Q and 1480 by end‑2026, from 1400 at the end of 2026 previously.

That's not far from current levels. The dollar was last at 1508 won. KRW=

Separately, BNY said their flows data showed "very heavy institutional selling" of the KOSPI that could feed into more downside risk for the won, given that flows into South Korean markets during the rally were increasingly unhedged.

(Alun John)

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