Korean Won Heads For Longest Rally In 13 Years On Inflows, AI

The South Korean won is set for its longest winning streak in 13 years as exuberance over artificial intelligence and inflows ahead of a key bond index inclusion buoy the currency.

The won strengthened as much as 0.8% to 1,425.25 against the dollar Thursday, rising for a seventh day in the longest such run since January 2013, according to data compiled by Bloomberg. It's the best-performing Asian currency on the day, supported by a surge in Samsung Electronics Co.'s profits, which improve the outlook for the nation's exports.

The gains come as foreign investors ramp up purchases of local assets, buying $2.8 billion of stocks and $3.5 billion of bonds so far this year. While the country's debt is set to be added to FTSE Russell's World Government Bond Index from April, market reforms and optimism around AI-linked companies is drawing inflows into equities.

"The fundamentals for South Korea suggest a stronger FX through 2026," said Michael Wan, senior currency analyst at MUFG Bank Ltd. The yen has also been a key catalyst, he said, adding that it raises questions about whether the won could also face intervention, either unilaterally or in coordination with US authorities. Wan forecasts the currency strengthening to 1,385 per dollar by the end of 2026.

The Bank of Korea has been monitoring foreign-exchange volatility, holding its benchmark rate steady earlier this month as the currency faced pressure from persistent dollar demand. Officials, including Governor Rhee Chang Yong, had previously cited strong retail demand for overseas equities as a drag on the won.

Korea's finance ministry announced a package in late December combining tax incentives and hedging measures to address supply-and-demand imbalances in the currency market. The steps include a new tax incentive for Reshoring Investment Accounts, aimed at encouraging overseas investment capital to return to domestic markets.

Source: Bloomberg