Goldman Sachs: Outflows Could Limit KRWs ‘Beta’ To A Global Recovery

Goldman Sachs note that "since late May, the Korean Won has experienced a bumpy grind stronger versus the Dollar, and has been among the better-performing Asian currencies. Given our constructive view on global growth and global trade, the pro-cyclical KRW remains our top pick among NJA low-yielders. A deep dive into Korea's financial flows, however, highlights an important risk: in recent months, outbound investment from retail investors rose to US$2bn on average over past four months, ten times the average monthly outflows in 2019. While some of the drivers of these outflows may be temporary, others - such as recent domestic tax hikes and regulatory tightening in property markets - could have persistent effects that could weigh on both Korea's balance of payments and, by creating stronger demand for Dollars in spot markets, could be a headwind for the KRW. Overall, the KRW is still likely to do well in an environment in which global demand for Korean exports continues to recover, and the prices of key products, such as semiconductors, avoid left tails. However, if the acceleration of outflows continues, the Won's 'beta' to global growth, and global trade, could be smaller than in past global cycles."