The Story of the Korean Foreign money (Gained): Lesson for Indian Traders

Right here in India, the place we’ve seen our rupee sway with the worldwide winds, what’s taking place with the received is a narrative value our consideration. While you consider forex, you may think chilly numbers and alternate charges. However behind each invoice and coin, there are attention-grabbing tales. There are a couple of anecdotes regarding the Korean received that resonate with the human aspect of economics.

I’ll use the story to clarify why FIIs have been the online sellers in India since 2015 (aside from the transient interval in 2020-21). You may soar to the conclusion to learn it first.

However first, the story of Korean forex (received). This can give us a perspective to grasp the well being of our INR and its aftereffects.

From Historic Cash to Fashionable Woes (Gained)

Let’s begin from the start.

The received, just like the rupee, has a storied previous. Born from the ashes of Japanese occupation in 1945, it has seen all of it, from financial miracles to monetary crises. Submit-World Struggle II, South Korea was a special world, very like India’s personal journey from colonial rule to financial independence.

The ’60s to ’90s had been South Korea’s golden period. It was akin to our personal liberalization interval. It was a time of fast development, the place the received turned a logo of South Korea’s increasing financial system.

However then got here the 1997 Asian Monetary Disaster. It was a stark reminder that no forex is an island.

The received plummeted, very like our rupee has in occasions of world monetary unrest. Such intervals train concerning the interconnectedness of recent economies.

The 2024 Shake-Up

Quick ahead to in the present day, and the received is within the headlines once more.

This time, it’s not nearly economics. Political instability has gripped South Korea. There may be an impeachment drama involving appearing president Han Duck-soo and accusations in opposition to President Yoon Suk Yeol has shaken the nation’s political panorama.

The end result? The received has fallen to its lowest degree of 2008-09. It has crossed the 1,473 KRW/USD mark. It’s that form of a quantity that’s sends shivers down the backbone of the S.Korean investor.

This political turmoil isn’t only a headline for the native information; it’s a sign for buyers worldwide, together with us in India.

When a forex just like the received depreciates, it impacts commerce balances, import prices, and the worth of investments in South Korean corporations.

For Indian buyers, particularly these with stakes in know-how or automotive sectors (like Hyundai India) the place South Korea performs large, it is a second to look at intently.

Bitcoin and the ‘Kimchi Premium’

There’s one other layer to this story – the rise of the ‘Kimchi Premium’.

What’s Kimchi Premium? Kimchi Premium is the worth distinction the place cryptocurrencies commerce greater on South Korean exchanges than international ones. For instance, Kimchi Premium is when Bitcoin prices Rs.25 lakhs on South Korean exchanges however solely Rs.22 lakhs elsewhere.

Why it’s taking place? As a result of the received is getting weaker. Because the received is getting weaker, Bitcoin in South Korea is buying and selling at a better worth than elsewhere. It’s a phenomenon pushed by capital flight and a seek for stability.

It’s a reminder of how cryptocurrencies can change into each a refuge and a speculative gamble when conventional currencies falter.

For us in India, this could possibly be a lesson in market dynamics. Maybe it’s also a chance to grasp the worldwide crypto panorama higher. Earlier, our hedge in opposition to weakening forex (inflation) was largely gold or actual property, now on this area, cryptocurrencies (like Bitcoin) has additionally entered.

Why It Issues to Us

Why ought to we, sitting hundreds of miles away, care?

As a result of in in the present day’s globalized financial system, a ripple in Seoul can create waves in Mumbai. The weakening received impacts import/exports and likewise investments.

Import/Export

If the Korean Gained weakens in opposition to the Indian Rupee, there are the 2 attainable results:

1. Imports to India from South Korea change into cheaper: Indian companies should purchase South Korean items like electronics, automobiles, and equipment at a decrease value. Decrease prices can probably enhance imports.
2. Indian exports to South Korea change into costlier: South Korean consumers will want extra Gained to purchase Indian items. It’s going to make Indian exports like spices, textiles, or prescribed drugs much less aggressive.

This imbalance might widen India’s commerce deficit with South Korea.

Investments

If the South Korean Gained weakens, FIIs holding South Korean shares may even see diminished returns of their house forex when changing income. It means, weaker Gained will decrease the worth of their investments. So, it the forex will proceed to weaken, FIIs typically promote their holdings.

Conclusion (INR Analogy)

From my vantage level right here in India, the story of the Korean received in 2024 is a cautionary story that tells the next:

• It highlights the fragility of currencies within the face of political instability. At this time, 99% of our investments are utterly depending on the power of a forex (in our case INR). If for some hypothetical cause, the worth of INR turns into junk, all of our investments will change into nugatory.
• It additionally underscores the significance of diversification in an investor’s portfolio. Shopping for solely shares, mutual funds, ETFs, REITs, financial institution deposits, is not sufficient. It’s important to park cash in gold (I imply bodily gold) and in some digital currencies like Bitcoin.
• It additionally highlights the necessity for a eager eye on geopolitical developments, not simply financial numbers.

INR Analogy

As we watch the received combating these turbulent occasions, we’re reminded of our personal forex’s journey.

Regardless of which authorities had been had been beneath (UPA or NDA), beneath each the governments, our forex has solely weakened. Test the above chart which proven how INR has weakened since 2004 until in the present day.

Little question why FIIs have been internet sellers within the Indian inventory market since 2015 (besides between 2020-2021 throughout COVID phases). Test the beneath chart to visually see the FII exercise sample between 2009 to 2015 after which between 2015 to 2024.

What we as buyers can be taught from it? Until USD is the principle forex of the world, our investments should respect in worth in INR and likewise in USD phrases. If INR continues to devalue because it has been since 2004, out internet value is NOT rising as quick as we’re at the moment assuming.

At current, there is no such thing as a disaster alarm in India. However, if we ever face a scenario like it’s in South Korean now, our INR linked funding might be in peril.

• Motion Level: Diversify your investments. Don’t make investments solely regionally. Maintain accumulating bodily gold.

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Have a cheerful investing.