J.P. Morgan Remains Bearish KRW

J.P. Morgan updates its view on the won post the FTSE/Russell announcement to keep Korea on the watch list for WGBI inclusion... "FTSE Russell announced late on Thursday that Korea will remain on the watchlist for inclusion in the WGBI bond index. The index provider also noted that some initiatives to improve the structure and accessibility of Korea’s capital markets may not be complete until 2H24. Our baseline outlook for KRW had anticipated index-related inflows from September 2023, and we were planning to review our bearish outlook for KRW in 2H23 on anticipation of active investors frontrunning the change. With this latest development, we do not impute WGBI-related inflows this year, potentially extending the horizon for our bearish KRW view."

"Our view on KRW factors in the aforementioned phenomena of the trade deficit and index inclusion, a weaker pace of FDI outflows, significantly less buying of foreign equities by retail investors, net-zero dollar demand by NPS (BoK may restart its swap line with NPS), almost neutral foreign equity flow, and no WGBI-related inflows this year. We also note that April tends to see a seasonal spike in dividend payouts by Korean companies, typically coinciding with upside in USD/KRW. Even if we were to shift our baseline assumption for Brent prices to current spot, USD/KRW should trade around 1,326 into end-May. We are short KRW vs USD, JPY, THB equally weighted."