UBS analysts suggested that the Korean won (KRW) might be poised for a recovery following its worst year since the Global Financial Crisis (GFC) in 2024. Over the last 12 months, USD/KRW is up 7.5%.
The currency’s significant underperformance was driven by five factors, including the Kospi’s relative weakness compared to the S&P 500, the largest tightening in the South Korea-United States 10-year yield spread in two decades, a sluggish manufacturing and exports cycle, continuous resident outflows, and late-year domestic political issues.
The won depreciated by 13% in 2024, with three-quarters of this decline occurring in the fourth quarter. Following this downturn, the won began 2025 on a more stable note and has been one of the best-performing currencies year-to-date. UBS analysts believe this trend might continue rather than fade.
UBS highlighted several positive developments that could support the won’s near-term outperformance. The National Pension Service’s (NPS) reported activation of foreign exchange hedging activities and a slowdown in outbound investments could positively impact Korea’s balance of payments by $50 billion annually. This potential shift, combined with a basic balance already at a respectable 4.5% of GDP, could lead to a 5% appreciation of the won.
Moreover, the Kospi index is showing signs of bottoming out amidst low valuations, and domestic political uncertainties are diminishing. While UBS maintains a cautious stance on the won over the medium term, analysts see the possibility for the currency to continue unwinding some of its elevated risk premium in the near future.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
This post is originally published on INVESTING.
