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USD/KRW Set To Retreat Says Morgan Stanely


Morgan Stanley thinks USD/KRW will struggle to break above 1170-1175 and could retreat as low as 1145: "Last week USD/KRW broke further above 1160 and almost hit 1170 amid weak sentiment due to rising daily new COVID-19 cases and the semi tech-led stock sell-off. More importantly, recent Street concern about Korea's semiconductor industry has been building and driving this round of sell-off in both KOSPI and KRW. Foreigners net sold KOSPI stocks for five consecutive days last week, with Wednesday, Thursday and Friday all seeing more than KRW 1.5 trillion. The most sold stocks were Samsung Electronics and SK Hynix. We do agree that further upside for Korea's semiconductor industry appears to be limited as global equity managers shift their positions gradually to more defensive value sectors as opposed to growth stocks. Rising DRAM prices usually also lead to a peak in the memory cycle. However, we think that the equity sell-off last week was an overreaction as the market needs a reason for stock correction. We look into historical patterns of foreign equity flows versus KRW in the past 10 years. Historically speaking, when KRW weakened due to significant KOSPI selling from foreigners (i.e., selling size > 0.1% of total KOSPI market cap) for a few days in a row, usually foreign outflows would then stabilise for the next few days. KRW would then rebound. We think that this time should be similar as well. In the near term, we don't expect USD/KRW to break above the 1170-1175 range in the next 1-2 weeks (unless DXY sees another leg of significant rally). We think that USD/KRW will retreat from 1169 back to 1145-1150 in the next few weeks, correcting the overshoot."

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