According to MUFG’s Michael Wan, strong demand related to artificial intelligence (AI) and robust semiconductor exports are helping to offset the negative effects of geopolitical risks stemming from the Strait of Hormuz for some Asian markets, particularly South Korea and Taiwan, with Singapore and Malaysia also benefiting to a lesser extent [1]. For South Korea, Wan highlights that hawkish signals from Bank of Korea (BOK) Governor Shin Hyun-song are preparing markets for a potential rate hike in July [1].
Wan notes that strong semiconductor exports have significantly boosted South Korea’s growth rates, resolving previous monetary policy dilemmas for the BOK. Key indicators such as household debt and exchange rates are also aligning with this positive outlook [1]. Inflation in South Korea was reported at a stronger-than-expected 3% year-over-year, while May exports, adjusted for working days, surged by 60% year-over-year, described as 'phenomenal' by Wan [1].
Given these developments, MUFG expects South Korean interest rates to remain 'sticky' in the near term. The firm forecasts that the USD/KRW exchange rate will move toward 1400 over the next 12 months [1]. MUFG also identifies the Korean won (KRW) as one of its top foreign exchange picks, citing cheap valuations, a more hawkish central bank, strong exports, a likely improvement in the current account surplus, and better earnings expectations, which are expected to offset resident outflows over time [1].
CONCLUSION
Strong AI-driven demand and record semiconductor exports are supporting South Korea’s economy and currency, despite ongoing geopolitical risks. MUFG anticipates a hawkish stance from the Bank of Korea and expects the won to appreciate, with USD/KRW moving toward 1400 over the next year.