Korea Macro Strategy, Equity Strategy & Economics: Why Is KRW So Weak?
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
The Korean won is among the weakest currencies in Asia ex-Japan year-to-date, diverging from strong domestic fundamentals including record current account surpluses, robust GDP growth, and improving terms of trade. Morgan Stanley attributes this weakness to massive foreign investor equity outflows and a likely lag in corporate FX conversion relative to surging current account surpluses.
Korean corporate foreign exchange deposits have increased by $14 billion since the March 2025 trade balance trough, while total corporate deposits rose by $34 billion. Additionally, Korean direct investment into the United States grew from 32% in June 2025 to 35% by year-end 2025, reaching $25 billion annually. This outward direct investment absorbs dollars that would otherwise be converted into won. Foreign investors may have also increased their FX hedging ratios in late 2025 and early 2026, breaking the traditional link between equity inflows and won strength.
Despite these pressures, Korea's fundamental outlook remains positive. Economic growth is expected to outpace the United States, trade surpluses remain robust, and interest rate differentials are narrowing. The nation's balance of payments surplus, excluding central bank reserve changes, stands at 1.2% of GDP. The won's undervaluation is comparable to the Indian rupee and Indonesian rupiah, yet Korea faces no comparable balance of payments crisis.
Looking ahead to the second half of 2026, foreign equity outflows should continue but at a moderated pace. The won may appreciate modestly as corporate FX conversion increases, though equity outflows will partially offset this. Bond yields should remain elevated amid central bank rate hikes and strong macroeconomic conditions.
Key exhibits
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6
Exhibit 7
Exhibit 8
