UBS analysts suggested that the Korean won (KRW) could be poised to recover from its worst year since the Global Financial Crisis (GFC) in 2024. Over the past 12 months, it up 7.5%.
The currency's significant underperformance was driven by five factors, including the Kospi's relative weakness compared to the , the biggest squeeze in the 10-year South Korea-US yield spread in two decades, a slow manufacturing and export cycle, continuous flows of residents, and domestic political issues at the end of the year.
The benefit declined by 13% in 2024, with three-quarters of this decline occurring in the fourth quarter. After this decline, the 2025 winner started on a more stable note and has been one of the best performing currencies this year. UBS analysts believe this trend could continue rather than fade.
UBS identified several positive developments that could support better performance in the long term. The National Pension Service (NPS) said that foreign currency hedging activities and a decline in outward deposits could positively affect Korea's balance of payments by $50 billion annually. The potential move, combined with a core balance already at a respectable 4.5% of GDP, could result in a 5% value of the benefit.
In addition, the Kospi index is showing signs of emerging from low valuations, and domestic political uncertainty is diminishing. While UBS maintains a cautious stance on the medium-term gain, analysts see the possibility that the currency will continue to release some of its high risk premium in the near future.
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