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DBS Sees Headwinds To Further Won Outperformance


DBS weighs in on the won outlook. Seeing potential headwinds to further outperformance.

  • The bank notes: "The Korean won (KRW) has notched a 1% gain against the USD since end-March and is on track to be the best performing Asian currency for Q22023. What are the drivers of KRW outperformance? We see two. First, there are signs of a bottoming in Korean exports led by the tech sector. Given expectations around an AI-driven investment splurge, Korea’s semiconductor industry is expected to benefit most. Second, a recent surge of foreign portfolio inflows into Korea across both bonds and equities have also driven KRW gains."
  • "Nevertheless, these two drivers have nuances that may temper KRW gains, while credit risks also lurk as a third factor that could give way to more two-way trading in the KRW."
  • "Without a return of broad USD weakness, concerns over trade competitiveness may check against further KRW gains."
  • "KRW has also been bolstered by large foreign portfolio inflows, with Q2 flows likely to come in as the largest quarterly inflow since 2009."
  • "Beyond cyclical trade and portfolio flows, the Korean economy has structural vulnerabilities that could surface during periods of high rates. One vulnerability is the high level of household indebtedness, with Korea having the third highest household debt (as a proportion of GDP) across the world."

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