SEOUL, 1 December 2025 — The South Korean won, which has come under pressure amid global risk shifts and domestic outflows, may be past its trough, according to currency strategist Andrew Lord at MorganStanley. Lord’s analysis suggests the currency may have already priced in much of the downside, paving the way for stabilisation.
What Morgan Stanley Is Seeing
According to Morgan Stanley’s report, several factors underpin the view that the won’s worst is behind it:
- Foreign-exchange outflows, especially by South Korean institutional investors and corporations, have moderated after a heavy pace of dollar-buying earlier in the year.
- While export-momentum remains under pressure, the valuation of the won is now more in line with underlying fundamentals, suggesting less scope for deep further losses.
- A weaker won may already be embedded in the market’s expectations, meaning upside surprises or stabilization could drive a reversal of sentiment and flows.
Lord noted that while the won remains sensitive to global risk sentiment and Korea-specific capital-flow shifts, the “path of least resistance” may now lean toward limited downside or gradual recovery rather than renewed deep weakness.
What This Means for Asian Investors & Korea Exposure
For investors with exposure to South Korea or the broader Asia-Pacific FX and equity space, this insight carries several implications:
- Currency hedging strategies: If the won is stabilising, currency-hedged equity exposures in Korea may offer better risk-return trade-offs versus unhedged.
- Exporters and cost dynamics: A stabilised won can relieve margin pressure for Korean exporters, especially those reliant on imported input costs priced in dollars, potentially improving earnings visibility.
- Portfolio allocations and currency risk: Investors reallocating within Asia might reduce over-hedging or discounting of Korean FX risk, possibly increasing Korea’s attractiveness relative to other currency-vulnerable markets (e.g., Indonesian rupiah, Philippine peso).
- Monitor capital flows: The currency bottom signal may prompt capital inflows (carry trades, export-equity flows) back into Korea, which could boost equities, bonds and credit spreads.
Key Risks & What to Watch Next
While the outlook suggests less downside for the won, several risks remain:
- Global risk-off episodes: Should there be a sharp global liquidity shock or risk-aversion spike, the won could come under fresh pressure.
- Domestic capital outflows: Continued outflows from Korean corporates or pensions buying foreign assets could extend FX stress, despite stabilisation signals.
- Export slowdown and trade-balance shifts: If Korea’s export demand weakens further, current-account deterioration could challenge the won’s stability.
- Policy responses: Bank of Korea or financial-regulatory responses (capital-flow measures, FX intervention) will influence whether the stabilisation holds.
Investors should watch:
- Monthly FX-flow data (spot/forward volumes),
- Net foreign investment into Korean bonds and equities,
- Won spot and forward-rate moves versus key peers (e.g., Japanese yen, Chinese yuan),
- Korea’s current-account trend and export data.
