South Korea Economics: Capital Outflow Pressure vs. Market Stabilization Measures

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South Korea Economics: Capital Outflow Pressure vs. Market Stabilization Measures

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02 Jul 2026 21:34:20 ET │ 13 pages

South Korea Economics

Capital Outflow Pressure vs. Market Stabilization Measures

CITI’S TAKE

In early July, capital outflow pressure from foreign equity investors

remains strong. In June, BoK foreign reserves surprisingly increased

despite potential smoothing operations during the month. We believe NPS

may have sharply increased FX hedge ratio via selling forward exchange

contracts at the market in June, effectively stabilizing USDKRW levels. Jin-Wook KimAC

Going forward, FX market stabilization measures, strong USD +82-2-2077-4229

semiconductor exports, and private sector’s USD funding activities could jinwook.kim@citi.com

stabilize USDKRW levels. Meanwhile, capital outflow pressure from

foreign equity investors could continue although recent KOSPI correction

could limit additional FX hedges via NDF purchase by foreign equity

investors (note). Citi’s FX strategy team expects USDKRW to fall around

1500 levels in 0-3 months (note).

[1] BoK foreign reserves: In June, BoK foreign reserves surprisingly increased by

+US$0.4bn to US$427.4bn. BoK explained the monthly expansion is attributable to

financial institutions’ foreign currency deposits (+US$0.9bn) despite market

stabilization measures such as BoK/NPS FX swaps (press release). Considering

strong USD-led FX valuation effects, the monthly increase of foreign reserves

excluding FX valuation effects would be +US$2.4bn (vs. May: -US$0.7bn; April:

+US$1.0bn), on our estimates. This is surprising as local media noted that the strong

degree of smoothing operations had repeated in June when USDKRW level rose to

around 1550 levels (Yonhap Infomax, June 26th; Yonhap Infomax, June 29th)