Analysis-Trump's Korea trade deal revives concerns about currency flight

Core Points - The trade pact between the U.S. and South Korea is expected to lead to significant capital outflows from South Korea, potentially impacting the won negatively while benefiting the Kospi index [1][2] - South Korea has committed to invest $350 billion in the U.S., with $200 billion in cash to be paid in installments capped at $20 billion per year, and $150 billion allocated for shipbuilding cooperation [2] - The investments will be funded through operating income from South Korea's foreign assets, but managing the capital outflows will be crucial for the stability of the won [3][4] Currency Impact - The Korean won is anticipated to face depreciation risks due to steady long-term capital outflows, which may limit short-term gains [4][6] - The won has been one of the worst-performing currencies in Asia, influenced by local investors' increasing interest in U.S. stocks [5] - Citigroup forecasts that the won could weaken further to 1,450 per dollar over the next six months to a year [5] Economic Context - The deal is seen as favorable for South Korea, alleviating uncertainties regarding investment financing, but the long-term outflows need to be considered [4] - The potential for lower conversion of dollar export proceeds to the won may exacerbate depreciation risks in the coming years [6]