According to a trader with over 25 years of experience at State Street, the South Korean won could potentially rebound in the latter half of this year. This is attributed to an easing of foreign investor selling of Korean stocks and the supportive effect of a persistent current account surplus for the currency.

State Street (STBK)

Ji Wang Seo, the head of foreign exchange trading and sales for the Seoul branch, indicated in an interview that if global risk sentiment improves and foreign investors return to Korean assets, the won could strengthen to the lower end of the 1,400 range against the US dollar by year-end. On Tuesday, the won was trading around 1,515 per dollar.

The won had fallen to its lowest level since the 2009 global financial crisis by late March, influenced by conflict in the Middle East and capital outflows from the Korean stock market. Seo suggested that sustained gains in the Korean stock market might encourage global investors to rebuild their positions after months of selling.

He also noted that the won could find additional support if the Bank of Korea raises interest rates, thereby narrowing the yield gap with the United States. Data compiled by Bloomberg shows the interest rate swap market pricing in a policy rate of 3.84% one year from now, implying expectations for more than five 25-basis-point hikes over the next 12 months.

From the start of the year through June 1st, foreign investors recorded a net sell-off of $65.7 billion worth of Korean stocks, marking the largest capital outflow on record. Despite this significant outflow, the benchmark Kospi index has still nearly doubled year-to-date, driven by rising share prices of memory chip manufacturers like Samsung Electronics and SK Hynix.