Brown Brothers Harriman’s (BBH) Elias Haddad notes the Korean Won (KRW) is outperforming, supported by a hawkish 25 bps Bank of Korea (BoK) hike to 2.75% and expectations that growth and core inflation will exceed 2026 projections. A sharp KOSPI correction after prior outperformance reduces the need for global investors to trim Korean equity exposure, removing a key source of KRW selling pressure and leaving the currency’s undervaluation attractive.

Policy tightening and valuation aid Won

"Bank of Korea (BoK) delivered a hawkish hike. BoK raised the policy rate 25bps to 2.75% after keeping rates on hold the past year."

"Going forward, BoK stressed “that it will be necessary to continue a policy stance consistent with further rate hikes.” That’s reasonable considering that South Korea real GDP growth (3.8% y/y in Q1) and core inflation (2.5% y/y in June) are expected to exceed the BoK’s 2026 projection of 2.6% and 2.4%, respectively."

"In parallel, the KOSPI index plunged as much as 7.6% today, wiping out the previous session’s gains and nearing its lowest level in more than two months amid the AI-led semiconductor selloff."

"The KOSPI’s correction following an extended period of outperformance reduces the need for global investors to trim Korean equity exposure back to benchmark, removing a key source of KRW selling pressure."

"The outlook for KRW is encouraging. The currency is significantly undervalued (11% undervalued based on deviation from real effective exchange rate trend), the BoK has started to tighten, and the South Korean government is taking meaningful steps to internationalize the won."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)