By Roushni Nair

(Reuters) - Bearish bets on the South Korean won and the Indian rupee soared to a two-year high as investors clung to their short positions in other currencies on growing concerns that potential U.S. tariffs would undermine the appeal of emerging market assets.

Short positions on the won increased to their highest since mid-October 2022, while those on the Indian rupee rose to their sharpest level since early-November 2022, a Reuters poll of 11 respondents showed on Thursday.

U.S. President-elect Donald Trump's threatened tariffs on China, Southeast Asia's largest trading partner, could spark inflation, leading to a more cautious Federal Reserve and shallower U.S. rate cuts, with potential ripple effects on emerging market currencies.

Bearish bets on the Chinese yuan retreated slightly as market expectations for stimulus support grew following a meeting of top Communist Party officials, who pledged to stabilize the country's property and stock markets.

Chinese officials are preparing to deploy extraordinary economic measures, including a potential yuan weakening, to counter the impact of anticipated higher trade tariffs under Trump, presenting another headwind to Asian currencies that are sensitive to the yuan due to trade relations.

"RMB will still be hit if Trump imposes tariffs. The uncertainty here is the timing, magnitude and scope. But for now daily CNY fixing pattern (below 7.20) suggests policymakers are likely to stick to the gameplan in using the fix to manage RMB expectations for now until tariff hits (if any)," said Christopher Wong, a currency strategist with OCBC.

In South Korea, the won plummeted nearly 2% last week as President Yoon Suk Yeol's brief martial law declaration and subsequent reversal sparked political turmoil, denting investor sentiment.

Fears of U.S. tariffs and an unexpected interest rate cut by the Bank of Korea coincided with a 14-month exports slump in the country, reflecting growing concerns about trade tensions and weakened U.S. demand.

"USD/KRW could continue to hover at 1,420 for 1H 2025 amid tariff risks and political uncertainty, but we expect a gradual recovery in 2H as political noise fades, while Korea’s growth could pick up with an upturn in the semiconductor industry, and lower rates," Wei Liang Chang, currency and credit strategist at DBS, said.

In India, the rupee hit a record low level thrice since last week, battered by slowing economic growth, persistent foreign investment outflows, and the ripple effect of volatile regional currencies, including the weakening Chinese yuan.