Commerzbank Research notes that USD/KRW has fallen to its lowest level since February as South Korean authorities tighten rules on leveraged ETFs to curb Kospi volatility. Expectations of further Bank of Korea (BoK) tightening, driven by Governor Shin Hyun-sung’s comments on inflation, and export earnings repatriation have supported the Korean Won (KRW) despite sharp equity market losses.

Won gains as regulators act

"The Finance Ministry announced additional measures to curb equity market volatility following an emergency meeting yesterday."

"To stabilize the market, authorities plan to curb retail participation in leveraged ETFs by capping portfolio exposure to these products and raising trading costs."

"The latest measures build on those announced in mid-July, including a suspension of new leveraged ETF listings and an increase in the minimum account balance required to purchase existing leveraged ETFs to KRW30mn from KRW10mn."

"The Finance Ministry faces mounting political scrutiny over whether single-stock leveraged ETFs amplified the recent market volatility. During a parliamentary hearing yesterday, opposition lawmakers from the People’s Power Party questioned the rapid rollout of leveraged ETFs despite prior warnings from the asset management industry."

"In FX, USD/KRW fell 0.7% to 1,444 yesterday, reaching its lowest level since 27 February. This was partly driven by rising expectations of further monetary tightening after BoK Governor Shin Hyun-sung told a parliamentary committee that tighter monetary policy may be needed to address mounting inflationary pressures. The pair has fallen 7.3% since 1 July as export earnings repatriation activity accelerated."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)