Group 1 - The recent weakening of the US dollar has led to a collective rebound of Asian currencies, with the South Korean won showing a notable increase of nearly 5% against the dollar in May [1] - Analysts attribute the strengthening of the won to discussions between the US and South Korea regarding exchange rates and the Bank of Korea's "compromise" on the won's appreciation [1] - The demand for hedging against the dollar's decline has surged, with the nominal trading amount of bearish options on the dollar-won pair exceeding $60 million last week, indicating a strong market sentiment [1][2] Group 2 - According to models from Goldman Sachs and Nomura, both the won and the South Korean stock market are undervalued, with the won estimated to be undervalued by about 12% [2] - The current level of foreign investment in the South Korean stock market is at a multi-year low, suggesting that attractive valuation levels may draw foreign capital back into the market, benefiting the won [2] - Barclays reports that the recent strength of the won is primarily driven by hedge funds utilizing digital options and bearish spreads to position for won appreciation [2] Group 3 - The National Pension Service (NPS) of South Korea is accelerating its currency hedging, with overseas investment assets totaling $497 billion as of February 2025 [3] - If the NPS strategically increases the hedging ratio of its dollar assets, it could result in an average monthly forward sell of $4 billion, exerting significant upward pressure on the won [3] - The South Korean asset management industry, projected to reach $13 trillion by the end of 2024, holds approximately $153 billion in overseas assets, which may lead to increased hedging activities if the expectation of won appreciation continues [3]

Group 1 - The core viewpoint of the articles highlights a significant increase in trading volume for USD/KRW options, particularly bearish positions, driven by hedge funds seeking to capitalize on potential Korean won appreciation following the recent surge of the New Taiwan Dollar [1][4][6] - The nominal trading amount for USD/KRW put options exceeded $60 million last week, with a ratio of 3:2 compared to call options, indicating a strong preference for bearish bets on the USD/KRW exchange rate [1] - The risk reversal indicator shows that the premium required to hedge against a decline in USD/KRW has approached a 21-year high, reflecting heightened market concerns about the dollar's strength [1][7] Group 2 - The New Taiwan Dollar's unexpected 7% rise this month has reshaped market expectations for Asian currencies, leading investors to believe that the Korean won may replicate this upward movement [4] - The ongoing tariff negotiations between the U.S. and its trading partners have fueled speculation that the Trump administration may favor a weaker dollar, positioning the Korean won as a key tool for hedging against a strong dollar decline [6] - Following the significant fluctuations in the New Taiwan Dollar, there has been a notable increase in bearish interest for USD/KRW options, further stimulated by recent forex-related commentary [7]

Core Viewpoint - Global hedge funds are heavily betting on the options market, believing that the long-underestimated South Korean won will replicate the recent record appreciation trend of the New Taiwan dollar against the US dollar [1][4]. Group 1: Market Dynamics - There has been a significant increase in demand for bearish options on the USD/KRW pair, with a put-to-call ratio of 3:2, indicating a strong bearish sentiment towards the dollar and bullish outlook for the won [1][5]. - The trading volume of USD/KRW options surged to its highest level of the year, reflecting market speculation on the potential direction of the won amid discussions between South Korea and the US regarding currency negotiations [4][5]. - The optimism surrounding global trade dynamics, particularly the easing of tensions between the US and China, has led investors to believe that the South Korean authorities may tolerate a stronger currency [4][6]. Group 2: Investment Sentiment - The recent substantial appreciation of the New Taiwan dollar has reshaped investor expectations for Asian currency exchange rates, positioning the won as a likely candidate to follow suit [4][6]. - Hedge funds are increasingly interested in which currencies might replicate the New Taiwan dollar's sharp gains, leading to a notable demand for both digital and vanilla put options on the USD/KRW pair [4][6]. - The risk reversal indicator, which measures the cost of hedging against a decline in the USD/KRW exchange rate, approached a 21-year high last week, further emphasizing the market's bearish outlook on the dollar [5]. Group 3: Economic Implications - The Trump administration's trade policies and potential acceptance of a weaker dollar could significantly impact the USD/KRW exchange rate, as many investors view the won as a proxy for changes in trade dynamics between the US and Asia [6][7]. - Analysts from major banks, including JPMorgan and Deutsche Bank, maintain a bearish stance on the dollar, suggesting that the current rebound in the dollar index may be temporary and that a prolonged dollar bear market is beginning [7]. - The erosion of the "American exceptionalism" narrative is seen as a contributing factor to the declining confidence in dollar assets, with market participants increasingly skeptical of the US's economic policies [7].