Goldman Sachs: January Underperformance On Equity Outflows And Positioning

Goldman Sachs note that USD/KRW has risen rose "by almost 4% this year, and KRW has underperformed other NJA currencies. We explain KRW's underperformance vs. NJA currencies by equity outflows and positioning. Korean retail investors bought USD5.2bn worth of foreign equities (predominantly U.S.) in January. As background, retail investors have become more active in foreign equities since last year, prompted by changes in local taxes and regulations and launches of new retail investment platforms. For instance, stock brokerage accounts stand at around 31mn or 1.2 accounts per economically active population. Meanwhile, foreign investors net sold USD5bn of Korean equities in January and Korea's National Pension Fund's asset allocation plan for 2021 implies around USD2.0-2.5bn of average monthly foreign equity purchases. So net equity outflows in January could have been as much as around USD12bn, larger than current account surplus for January, seasonally weak, estimated at about USD8bn. Separately, the broad USD has rallied. Looking ahead, retail flows could add to upward momentum in USD/KRW during spells of USD strength. However, we maintain our medium-term bearish USD view, where we think the first order driver of the USD is global growth. Moreover, empirical evidence over several economic cycles remain supportive of KRW's outperformance in global pro-cyclical upturns."