South Korea: Growth risks drive capital outflows – Standard Chartered

Foreign investors have net-sold nearly KRW 2tn (USD 1.74bn) worth of Korean equities over the past two weeks, points out Chong Hoon Park, Head of Korea Economic Research at Standard Chartered Bank.

Key Quotes

“These outflows have been widely attributed to the growing US-Korea rate spread and Korean won (KRW) depreciation, and have drawn comparisons with the capital outflows that triggered the Asian financial crisis in 1997. However, we think these concerns are overdone, and that the recent equity sell-off has instead been caused by concerns about the US-China trade dispute and a slowdown in Korea’s IT sector.”

“First, cumulative equity flows and the USD-KRW rate have shown no correlation since early 2018.”

“Second, the KRW real effective exchange rate (REER) has been rising recently, meaning that the currency is outperforming most of its trade partners in emerging markets.”