2014.04.2303:36:00UTC+00Krw may Not Require Net New Portfolio Inflows to Extend Its Mild Year to date Gains

Quotes from Standard Chartered:

-Stronger Korean growth in recent quarters has failed to spark sustained Korean won (KRW) gains versus the US dollar (USD) despite Korea's substantial current account (C/A) surplus (6.8% of GDP in 2013). Bank of Korea intervention and choppy portfolio inflows have been headwinds for the KRW.

-However, the large drop in Korean banks' net external liabilities is the main (and an accelerating) reason for the recycling of the surplus. Korean exporters may have been slow to convert receivables back into KRW, boosting foreign currency deposits - and triggering bank outflows across the financial account. This is a mirror image of Chinese exporters' 'over-conversion' of receivables.

-This may explain not only why C/A surpluses failed to deliver strong KRW gains in 2013, but also why the KRW has shrugged off losses in the offshore Renminbi. Ebbing expectations of overseas FX gains may have underpinned, not harmed demand for the KRW from Korean corporations. Hence, the KRW may not require net new portfolio inflows to extend its mild year-to-date gains versus the USD.