Concerns About US Demands

South Korean President Lee Jae Myung is worried that accepting U.S. demands for $350 billion in investments without proper safeguards could lead to a financial crisis similar to the one in 1997. He pointed out that the main issue in trade talks is making sure the projects are commercially viable, as the U.S. wants to control how the money is spent. Lee noted that South Korea proposed a foreign exchange swap with the U.S. to reduce risks. However, Seoul lacks significant reserves or a swap line like Japan has. While there are no major disagreements with the U.S. on defense and security, unresolved trade issues could harm their relationship. In a different context, Lee downplayed worries about a U.S. immigration raid at a Hyundai plant, saying it was due to over-enthusiastic officials. He also warned about growing threats from North Korea and Russia working together and acknowledged that dialogue with North Korea will be tough. Lee stressed the urgent need for peace around the Taiwan Strait and finding solutions to global tensions. With the potential for a large $350 billion capital outflow from South Korea, we should brace for a significant drop in the Korean won. The lack of a U.S. currency swap line adds to the risk by taking away an important safeguard against a currency crisis. We’ve seen the USD/KRW exchange rate test the 1,450 level several times this past week. If this level is decisively broken, it could lead to a sharper decline. Pressure on the won, combined with the risk of unstable trade relations, suggests a bearish outlook for the KOSPI 200 index. We remember how quickly foreign capital left during the 1997 Asian financial crisis, and history shows that such outflows can severely depress equity markets. In fact, Bank of Korea data released this month indicates that foreign investors have been net sellers of Korean stocks for the fourth week in a row, a trend that is likely to continue.

Investment Strategy

Given this situation, buying put options on the KOSPI 200 or major export-driven stocks like Samsung Electronics and Hyundai Motor appears wise. At the same time, we should think about going long on volatility by purchasing call options on the VKOSPI index. This index has already risen nearly 20% in September 2025, indicating that the market is reacting to the growing uncertainty ahead of U.S. trade talks. The broader geopolitical tensions involving Russia, North Korea, and the Taiwan Strait support a risk-off strategy. These issues create an unstable backdrop that could worsen any financial shocks from the U.S.-South Korea negotiations. This environment makes a strong case for holding safe-haven assets, suggesting that profits from short positions in Korea could be shifted into U.S. dollars or gold derivatives. Create your live VT Markets account and start trading now.

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