South Korea’s Lee flags won weakness and leveraged product risks
President Lee’s comments add a political dimension to two threads markets have been watching closely, the won’s persistent weakness and the role leveraged products played in this month’s sharp equity swings. His framing of USD/KRW near 1,500 to 1,600 as “strange" given the current account surplus suggests some official discomfort with the currency’s level, which could support the won at the margin alongside the Deputy Finance Minister’s comments that it is likely to rise further. On leveraged products, the acknowledgment that market participants see a significant policy problem raises the prospect of additional regulatory measures beyond those already introduced, a dynamic likely to keep single stock leveraged ETFs and similar instruments under scrutiny. None of this is occurring in isolation from today’s rebound in the Kospi, which is up more than 2% so far as bargain hunters return following recent heavy losses.
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President Lee questioned the level of the won and acknowledged calls for further curbs on leveraged products, as South Korean stocks staged a sharp rebound after last week’s heavy selloff.
Summary:
- South Korea’s President Lee Jae Myung said it was strange to see USD/KRW hovering around 1,500 to 1,600 won, citing the country’s higher current account surplus compared with last year
- Lee said there is criticism that leveraged products amplified stock market volatility
- He said market participants see the policy problem with leveraged products as significant and that supplementary measures are needed
- Deputy Finance Minister and FX chief Moon Ji Sung said the won is likely to rise further and that the Bank of Korea’s rate hike is intended to help stabilise the currency
- Moon said the won remains weaker than fundamentals would suggest
- The Kospi has risen more than 2% so far on Tuesday, rebounding after Monday’s 4.46% drop and Friday’s 6.37% fall
South Korean President Lee Jae Myung said Monday it was strange to see the dollar won rate hovering around 1,500 to 1,600 won per dollar, pointing to the country’s higher current account surplus compared with the same period last year. Speaking at a cabinet meeting, Lee also acknowledged criticism that leveraged products had amplified recent stock market volatility, saying market participants view the policy problem as significant and that supplementary measures are needed.
Lee’s comments came as South Korean Deputy Finance Minister and FX chief Moon Ji Sung separately said the won is likely to rise further and that the Bank of Korea’s recent rate hike is intended to help stabilise the currency. Moon said the won remains weaker than its underlying fundamentals would suggest, echoing the president’s characterisation of the exchange rate as out of step with the country’s economic position.
The remarks land as the Kospi stages a sharp rebound following a punishing run of losses. The index shed 4.5% on Monday after a 6.3% fall on Friday, but opened higher on Tuesday and has since risen more than 2%, driven by bargain hunting in battered tech heavyweights and a shift among foreign investors from heavy selling to net buying. The rebound comes even as overnight US markets closed lower on renewed Middle East tensions, underscoring how much of the recent volatility in Korean equities has been tied to swings in sentiment around AI linked and semiconductor stocks rather than moving in lockstep with US markets.
The leveraged product comments follow the Financial Services Commission’s move last week to triple the minimum deposit requirement for single stock leveraged ETFs, and add to political pressure on regulators to consider further tightening if volatility persists. Together, Lee’s remarks on both the currency and leveraged products suggest authorities are keeping a close watch on two of the more volatile threads in South Korea’s markets this year, even as equities attempt to stabilise after a turbulent stretch.
This article was written by Eamonn Sheridan at investinglive.com.