Michael Wan at MUFG notes that a sharp sell-off in South Korean equities has boosted demand for South Korean Won downside protection. The KOSPI fell heavily, led by semiconductor names amid concerns over Chinese competition and AI capex sustainability. KRW risk reversals show investors paying more for protection, consistent with sizeable foreign equity outflows and related Won selling.

Equity weakness weighs on KRW

"In South Korea, the sharp sell-off in equities has driven a marked rise in demand for KRW downside protection, with the KOSPI extending its decline by 5.5% in yesterday’s trading session to the 6,035 level, as losses intensified across the semiconductor sector."

"Samsung Electronics and SK Hynix led the move lower amid renewed concerns over cheaper Chinese competition following reports of progress in memory-chip technology at China’s CXMT, weakness in US semiconductor stocks and broader questions over the sustainability of AI-related capital expenditure."

"The rise in KRW risk reversals shown suggests investors have responded by paying more for protection against won depreciation, consistent with the US$3.3bn of foreign equity outflows from South Korea yesterday, which generated underlying KRW selling as investors converted the proceeds into foreign currency."

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