During a press briefing in Seoul, President Lee Jae Myung articulated an optimistic outlook for the South Korean currency, forecasting that the won will likely appreciate to approximately 1,400 per dollar within a month or two according to relevant governmental authorities. This statement came amidst the won’s recent depreciation to levels not seen since late December.
Following the president’s comments, the won strengthened by as much as 0.5 percent, improving from a low point of 1,481.4 per dollar earlier in the session to 1,468.8 per dollar. Market participants reacted swiftly, with one local currency trader noting that the exchange rate decline resulted from traders closing out long dollar positions in reaction to the president’s remarks.
South Korea’s financial authorities have implemented multiple policy measures beginning late last year aimed at supporting the won, which has been trading near a 16-year nadir. Officials have asserted that the currency’s recent weakening is inconsistent with the country’s underlying economic fundamentals.
Nevertheless, President Lee acknowledged that efforts at the domestic level may not suffice to reverse the won’s depreciation alone. He noted a correlation between the won’s weakening and the Japanese yen’s lower valuation, stating that despite these external pressures, the won’s performance remains comparatively better.
"We will continue to strive to identify sustainable policy instruments to stabilize the exchange rate," President Lee declared.
On the equity front, Lee assessed that the South Korean stock market continues to be undervalued despite its significant turnaround. Last year, the market logged a noteworthy 76% rally, emerging as the world’s top-performing stock index by that measure.
The so-called "Korea Discount" — a persistent phenomenon where South Korean equities trade at lower levels compared to global counterparts due to factors like corporate governance challenges, political risks, and market practices — is gradually easing. Lee pointed out that concerns such as national security, corporate governance issues, and political volatility that traditionally suppressed valuations are beginning to be addressed.
The benchmark KOSPI index experienced a 15% climb so far this month, buoyed by gains in semiconductor and automotive sectors fueled by enthusiasm over artificial intelligence developments. The index traded around 4,880 points on Wednesday, recouping early session losses.
Lee remarked on the index’s prospects, saying, "It looks poised to exceed 5,000 points driven by a currently unforeseen surge in artificial intelligence and semiconductor industries." This underscores the influence of transformative technology trends on market valuation.
Key Points
- Authorities foresee the won strengthening to roughly 1,400 per dollar within a couple of months, reflecting expectations of currency recovery.
- The domestic stock market, despite a 76% gain last year, remains undervalued as structural issues contributing to the "Korea Discount" diminish.
- Technological advancements in the semiconductor and automotive sectors, particularly linked to artificial intelligence, are key drivers behind recent stock market gains.
Risks and Uncertainties
- The won’s appreciation may be limited by external factors, especially currency weakness in Japan, implying a dependence on broader regional dynamics.
- Ongoing political and governance challenges, though improving, still contribute to market undervaluation and may affect investor confidence.
- The durability of the recent stock rally is yet to be confirmed, with potential volatility stemming from evolving global economic conditions and technological sector performance.