Friday: Markets eye rate hikes to bolster yen, rupee & won | 5 Jun 2026

Nuggets

Friday: Markets eye rate hikes to bolster yen, rupee & won | 5 Jun 2026 | 5 in 5 with ANZ · Nuggets

The Macro Disconnect: The South Korean Won broke past the critical 1,500 psychological boundary against the US Dollar, collapsing to its lowest level since 2009. Historically, valuations of this depth are reserved exclusively for systemic global crises.
The Paradigm Conflict: Conventional market narratives assert that the Won is falling because South Korea is a massive net importer of crude oil, leaving it exposed when oil prices trade near or above $100 per barrel during Middle East escalations.
The Structural Reality: Khoon Goh (ANZ Head of Asia Research) completely disproves this theory for the current macro cycle [00:06:01]. South Korea is logging record-high trade and current account surpluses, alongside drastically improved terms of trade. This strength stems from South Korea being a primary infrastructure provider for the global Artificial Intelligence (AI) investment boom—evidenced by a massive 200% year-on-year surge in semiconductor exports.
Mechanical Flow Dynamics (Follow the Flows): The real driver behind the KRW's weakness is not bad fundamentals, but severe institutional equity portfolio rebalancing [00:06:47]. In May, foreign equity outflows from South Korea reached a historic monthly record of $27 billion USD. Paradoxically, this occurred while the domestic Kospi index hit all-time highs, logging a monumental 100%+ rally year-to-date.
The Indexation Mechanism: Because South Korea represents the third largest country weighting inside the MSCI Emerging Markets Index—the primary benchmark for global emerging market allocations—the 100%+ valuation spike left global asset managers heavily overweight South Korea. This triggered mechanical, mandatory portfolio rebalancing sales, forcing large-scale capital outflows that hammered the currency.
Stabilization Vectors:
1. National Pension Service (NPS) Re-hedging: As the world's third largest pension fund, the NPS has revised its strategic asset allocation rules, targeting a 10% currency hedge on its massive overseas portfolio [00:08:00]. With the Won down at 2009 historical floors, these multi-year lows offer an optimal entry point for active NPS hedging operations, providing a structural floor for the currency.
2. Exhaustion of Rebalancing Waves: The mechanical index-related liquidations are projected to drop off, as the Kospi's vertical 100%+ year-to-date trajectory naturally slows down. This stabilization, combined with anticipated upcoming rate hikes from the Bank of Korea (BoK), provides a clear path for a structural recovery in the Won.

Friday: Markets eye rate hikes to bolster yen, rupee & won | 5 Jun 2026 | 5 in 5 with ANZ

Global Markets Overview & Commodity Deficits [00:00:09]

References

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Friday: Markets eye rate hikes to bolster yen, rupee & won | 5 Jun 2026 | 5 in 5 with ANZ

Global Markets Overview & Commodity Deficits [00:00:09]

References

More nuggets

Robert Kaplan Exclusive | India's Growing Economic Potential Amid Global Challenges

BofA: The Consumer’s Summer Spending Surge | 15 Jul 2026

Must Read Research: SpaceX; The Next AI Winners; Europe’s Earnings Momentum; Buy Value | 14 Jul 2026

Japan: The JPY 160 Frontier & Impending BoJ Monetary Action [00:00:15]

Australia: Trade Surplus Rebound & Consumer Sentiment Mechanics [00:02:10]

New Zealand: Structural Construction Drifts & GDP Re-alignment [00:03:21]

India: RBI Defenses & Foreign Bondholder Tax Restructuring [00:02:20]

Deep Dive: Decoding the South Korean Won (KRW) Outflow Paradox [00:05:06]

Capital Group: 2026 Midyear Outlook | 16 July 2026