J.P. Morgan Short KRW Basket Trade

"We recommend being short KRW vs USD, JPY, THB, IDR – this generally tracks the NEER.
Index-related inflows are unlikely to materialize until around 3Q23. Between energy prices and slipping exports, KRW stands to underperform in 2023. The financial account should add further strain, from retailer demand for foreign equity and FDI, while we assume NPS will tactically buy/sell dollars depending on market conditions for KRW.

Before the dollar reversed course in October 2022, KRW had depreciated the most in Asia FX. We noted at the time that KRW weakness was overdone and out of sync with Korea’s BOP fundamentals, which favoured depreciation but not as much as had occurred. In the last few months, KRW has been Asia’s best performer after THB, but is now perched precariously before an unfavourable BOP outlook for 2023. In our base case, we see USD/KRW crossing 1,300 over the next few months and even the bull case for KRW portends stabilization. As such, we enter a short KRW trade versus USD, JPY, THB, IDR equally weighted – this basket broadly tracks the KRW NEER."