Following calls from South Korean authorities for banks to clamp down on speculative trading against the won, the beleaguered currency has rebounded today.
The weakness of the won represents a significant market anomaly this year. Recently, the won has fallen to its lowest level against the U.S. dollar since 2009.
A surge in demand for South Korean memory chips has not only propelled the country to a trade surplus but has also fueled a major rally in its primary stock index. This macroeconomic backdrop would typically be supportive for the currency. However, the won has instead become one of the worst-performing Asian currencies in 2024.
One of the drivers behind the won's decline is that foreign investors have actually been selling South Korean equities. Official data shows that foreign capital recorded net outflows every month through April of this year.
Ironically, this selling pressure stems precisely from the robust performance of the domestic stock market. South Korean shares have soared this year, with the benchmark KOSPI index rising as much as 10.9% from its year-to-date low. Faced with such substantial gains, fund managers have been trimming their positions to avoid excessive concentration in their portfolios.
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