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<\/a><\/p>\nEven so, the won has kept falling, last trading at around 1,540 per dollar, leaving it down more than 6 per cent this year.<\/p>\n
The currency\u2019s weakness is at odds with a booming economy and surging equities. The benchmark Kospi has jumped about 90 per cent this year, the strongest run of any major global equity gauge, powered by an AI frenzy that has turned Samsung Electronics and SK Hynix into trillion-dollar giants. Exports are hitting record highs and the current-account surplus \u2013 at about US$28 billion in April \u2013 is among the largest Korea has ever posted.<\/p>\n
To understand the disconnect, it helps to look at how things used to work: for decades, strong exports and persistent current-account surpluses supported the won. Exporters repatriated earnings and foreign investors poured money into Korean assets.<\/p>\n
That dynamic is faltering. South Korea posted a US$102.7 billion current-account surplus in the first four months of the year. But much of that inflow is offset by capital outflows \u2013 over US$60 billion from outbound direct investment and local investors buying foreign securities \u2013 while global investors have pulled some US$43.6 billion from Korean equities.<\/p>\n
In effect, Korea is increasingly behaving like a capital exporter. It continues to earn dollars from trade, but that money is being invested overseas rather than recycled into local markets.<\/p>\n
\u201cThis transparency proves Korea is committed to international standards,\u201d said Ali Bora Yigitbasioglu, senior investment manager of emerging-market fixed income at Pictet Asset Management. \u201cWhile directional exposure still depends on the semiconductor export cycle, removing these operational friction points makes holding Korean assets structurally more attractive.\u201d<\/p>\n
Other factors are adding pressure on the currency. The National Pension Service has been increasing its overseas investments, a shift that involves buying dollars and selling won, although it pared back those plans this year. Investors are also worried about the US-Korea trade deal, under which Seoul has promised to invest US$350 billion in America.<\/p>\n
Still, Seoul is committed to the change. \u201cThis isn\u2019t merely a regulatory reform \u2013 it is a critical piece of infrastructure that enables Korea\u2019s capital markets to achieve the level of accessibility and convenience expected of developed markets,\u201d Moon Jisung, Korea\u2019s deputy finance minister, said in an interview.<\/p>\n
Arbitrage trades<\/p>\n
The global foreign exchange market runs around the clock during the week, allowing counterparties to hedge risks as markets move. That has been the norm since major currencies began floating freely in the early 1970s, evolving into a market that now turns around US$9.6 trillion a day across Asia, Europe and North America.<\/p>\n
Currently, the won trades for 17 hours before the market shuts from 2 am to 9 am in Seoul, a window that overlaps with the US trading day.\u00a0<\/p>\n
The break has frustrated global investors. Anyone buying Korean stocks takes on exposure to the won, but once the onshore currency market closes, investors have little choice but to manage that risk offshore through non-deliverable forwards, or NDFs, contracts that settle without actually exchanging the currency.<\/p>\n
Heavy use of NDFs creates a class of arbitrage traders who exploit price gaps between offshore and onshore markets, adding the kind of volatility that regulators frown upon.\u00a0<\/p>\n
The shift to 24 hours \u2013 from Monday morning to Saturday morning \u2013 will eliminate that gap. Authorities are also introducing hourly benchmark pricing, easing foreign-investor reporting rules and allowing offshore spot won trading from next year.<\/p>\n
In theory, continuous trading should smooth price action, though benefits may take time to emerge. \u201cGreater market openness is likely to come with higher volatility, and that is something policymakers should keep in mind,\u201d said Bumki Son, an economist at Barclays.<\/p>\n
Banks are racing to prepare. Woori Bank, one of the country\u2019s largest lenders, secured a UK licence late May to support won-related transactions and investments outside Korean market hours. Most major banks have expanded, or are expanding, their dealing teams in London and Seoul.<\/p>\n
Investors see new trading prospects too. \u201cThere will be a lot of people trying to access the market as a carry trade opportunity,\u201d said Ed Al\u2011Hussainy, a portfolio manager at Columbia Threadneedle in New York, referring to a strategy where investors borrow a low-yielding currency to invest in assets with higher returns.<\/p>\n
Building buffers<\/p>\n
South Korea has been preparing for this moment for years.\u00a0<\/p>\n
Many of today\u2019s senior government officials were on the front lines of the 1997 Asian financial crisis when the won lost half of its value within the span of two months. Then Korea was teetering on the brink of default, as short-term foreign debt ballooned and conglomerates were collapsing.<\/p>\n
\u201cThe won was plunging more than 10 per cent a day, with swings at times exceeding 20 per cent,\u201d recalled Lew Changbeom, a former currency trader at Bank of America NA and JPMorgan Chase. \u201cI truly feared the country might collapse.\u201d<\/p>\n
The takeaway was clear: never again be caught short of dollars. Korea rebuilt its foreign reserves \u2013 once down to just four to five days of import cover \u2013 and tightened its grip on the currency, restricting trading hours, keeping settlement onshore and channeling transactions through designated banks.\u00a0<\/p>\n
Today, it sits on one of the largest foreign reserve stockpiles in the world, giving it a war chest to support its currency against global pressures.<\/p>\n
Back inside the box, officials are just one call away from key decision makers in Seoul or banks to act quickly if the market suddenly turns. But with 24-hour trading on the horizon, the efficacy of such tactics may diminish.\u00a0<\/p>\n
\u201cForeign exchange authorities should move away from the idea that the market needs to be tightly controlled,\u201d said Seungheon Lee, the former senior deputy governor at the Bank of Korea. \u201cTo achieve tangible results, we must resolve the mechanisms that prevent trading from taking place.\u201d BLOOMBERG<\/p>\n","protected":false},"excerpt":{"rendered":"The change is central to Seoul\u2019s bid for an MSCI upgrade to developed-market status [SEOUL] Deep inside a…\n","protected":false},"author":2,"featured_media":74246,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[456],"tags":[845,846,2043,33,18757],"class_list":["post-74245","post","type-post","status-publish","format-standard","has-post-thumbnail","category-bank-of-korea","tag-bank-of-korea","tag-bok","tag-forex","tag-south-korea","tag-south-korea-stocks"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/74245","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=74245"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/74245\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/74246"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=74245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=74245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=74245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}