Insights 
VT 
Concerns Over US Demands
South Korean President Lee Jae Myung expressed concerns that accepting U.S. demands for $350 billion in investments without proper safeguards could lead to a financial crisis akin to the 1997 meltdown. He noted the main challenge in trade discussions is ensuring the commercial viability of projects, as the U.S. wants control over where the money is allocated.
Lee mentioned that South Korea has suggested a foreign exchange swap with the U.S. to mitigate risks. However, Seoul does not have substantial reserves or a swap line like Japan. Although no major disagreements exist with the U.S. on defence and security, unresolved trade issues could destabilise relations.
In a separate matter, Lee downplayed concerns over a U.S. immigration raid on a Hyundai plant, suggesting it was due to overly zealous officials. He also warned about increasing threats from North Korea-Russia military cooperation and acknowledged that dialogue with Pyongyang will be challenging. Lee emphasised the urgent need for peace around the Taiwan Strait and finding a resolution to global tensions.
Given the potential for a large, $350 billion capital outflow from South Korea, we should be preparing for significant weakness in the Korean won. The lack of a U.S. currency swap line is critical, as it removes a key buffer against a currency crisis. We’ve seen the USD/KRW pair test the 1,450 level multiple times in the past week, a psychological barrier that, if broken decisively, could signal a much sharper decline.
This pressure on the won, combined with the risk of destabilized trade relations, points toward a bearish outlook for the KOSPI 200 index. We remember how quickly foreign capital fled during the 1997 Asian financial crisis, and history shows that such outflows can cause severe equity market downturns. In fact, Bank of Korea data released this month showed foreign investors were net sellers of Korean equities for the fourth straight week, a trend that is likely to accelerate.
Investment Strategy
Therefore, buying put options on the KOSPI 200 or major export-oriented stocks like Samsung Electronics and Hyundai Motor seems prudent. At the same time, we should consider going long on volatility by purchasing call options on the VKOSPI index. The index has already climbed nearly 20% in September 2025, suggesting the market is beginning to price in this heightened uncertainty ahead of the U.S. trade talks.
The broader geopolitical tensions involving Russia, North Korea, and the Taiwan Strait further support a risk-off strategy. These issues create a backdrop of instability that could amplify any financial tremors originating from the U.S.-South Korea negotiations. This environment strengthens the case for holding safe-haven assets, suggesting that any profits from bearish Korean positions could be rotated into U.S. dollar or gold derivatives.
