Societe Generale strategist Kiyong Seong has adopted a tactically constructive stance on the USD/KRW currency pair, suggesting that the recent strength of the South Korean Won has been primarily driven by late-stage flow factors rather than underlying macroeconomic fundamentals [1]. Seong notes that USD/KRW has exhibited unusual volatility and atypical relationships with traditional market drivers in recent quarters, underscoring the dominant influence of flow dynamics such as SK Hynix ADR flows and shipbuilders’ FX hedge flows [1].
According to Seong, these flow-related factors have been the main forces pushing USD/KRW lower, but he believes they may now be entering a late-stage phase, which increases the risk of a reversal in the trend [1]. He highlights the potential for Korean retail investors to return to US equities as another key driver that could support a reversal in the Won's recent strength [1].
Based on this analysis, Societe Generale favors building long USD/KRW positions, with a target of 1,470 over the coming months [1]. The strategist expects that the unusual flow-driven dynamics are likely to persist for now, but sees growing risks that could shift the balance in favor of USD strength against the Won [1].
CONCLUSION
Societe Generale's analysis points to a potential reversal in the South Korean Won's recent strength, driven by fading flow factors and possible renewed outflows to US equities. The bank recommends a long USD/KRW position with a target of 1,470, suggesting a moderately positive outlook for the US dollar against the Won in the near term.