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Kospi-KRW decoupling wanes as foreign ETF inflows slow

Created at 1 Sep · 12:16 AM1 source↑ Market-relevant
IN SHORT

Foreign investors' record inflows into leveraged ETFs drove a breakdown in correlations between Korean stocks and the won in H1. As this relationship normalizes, traders remain alert for future outsized moves.

Who's Involved

Foreign investors
drove a breakdown in correlations between Korean stocks and the won
Hedge funds
on alert for future outsized moves

↳ Why This Matters

The normalization of the correlation between Korean stocks and the won suggests a return to typical emerging market currency behavior, but traders remain watchful for potential future volatility.

Key facts

  • Record inflows into leveraged exchange-traded funds by foreign investors drove a breakdown in correlations between Korean stocks and the won during the first half of the year.
  • Emerging market currencies typically have a positive correlation with their local equity markets, strengthening in bull markets.
  • The negative equity-FX correlation has normalized as volatility subsides.

Record inflows into leveraged exchange-traded funds (ETFs) by foreign investors drove a breakdown in correlations between Korean stocks and the won during the first half of the year. Emerging market currencies typically have a positive correlation with their local equity markets, strengthening in bull markets. The negative equity-FX correlation has normalized as volatility subsides, but funds are poised for future opportunities.

Frequently asked questions

Emerging market currencies typically have a positive correlation with their local equity markets, strengthening in bull markets.

Record inflows into leveraged exchange-traded funds (ETFs) by foreign investors drove the breakdown in correlations.

The negative equity-FX correlation has normalized as volatility subsides.
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How It Developed

Foreign investors' record inflows into leveraged ETFs drove a breakdown in correlations between Korean stocks and the won.
The negative equity-FX correlation has normalized as volatility subsides.
Hedge funds are poised for future opportunities even after the relationship normalized.

Sources

T1
Traders remain on alert as Kospi-KRW decoupling wanesRisk.net

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