Goldman Sachs: KRW Pressured On Foreign Equity Outflows

Goldman Sachs note that the KRW "significantly underperformed NJA peers over the past week, as foreign equity outflows amounted to US$4bn (US$23bn year-to-date). Our equity strategists highlight that the foreign selling has been very concentrated in chip manufacturers with two stocks representing around 80% of the all the foreign outflows year-to-date. The thesis here is that improving DRAM supply, coupled with weakening PC demand could prompt a correction lower in DRAM chip prices that have risen by around 40% year-to-date; although our tech analysts believe that the concerns are overstated given low supplier inventories and strong demand for server DRAM."

• "Meanwhile, South Korean COVID cases have been rising to ~2,000 cases per day and delays in Moderna vaccine delivery have led to concerns surrounding the country's vaccination schedule, although the government maintains its target of 70% vaccination (1st dose) by end-September."
• "In terms of positioning, we think that the market was very short USD/KRW coming into the summer, underpinned by a more bullish global growth outlook previously (mid-Q2) and more hawkish BoK. However, the spread of the Delta variant has led to numerous economic growth downgrades in DM and EM markets, as mobility restrictions have been re-imposed. We maintain our view for the BoK to hike rates on 26th August and maintain our pay KRW 5-Year trade recommendation, but acknowledge that is a closer call given the recent virus/vaccine developments."