Strategists indicate that the South Korean won could rebound to its pre-Iran conflict level in the second quarter of this year, driven by falling oil prices and foreign capital flowing into the South Korean stock market. Woori Bank forecasts the won will strengthen to 1,420 per US dollar, implying an approximate 4% gain from current levels. NH Investment & Securities and KB Kookmin Bank project the exchange rate to recover to around 1,450 won per dollar, compared to the pre-conflict level of approximately 1,440 won.
After rising for seven consecutive trading sessions, the won depreciated by 0.5% against the US dollar on Thursday, reaching 1,484.55. The sharp decline in oil prices is alleviating pressure on South Korea, which is highly dependent on imports, as well as on other Asian markets that showed signs of recovery on Wednesday. This week also brought indications that global capital is returning to South Korean equities.
As the won exchange rate has tested extreme levels and signs of easing Middle East tensions emerge, market expectations for a won rebound are growing. Woori Bank economist Gyeong-Won Min stated, "Should Middle East uncertainties subside, excessive long positions in the US dollar will be gradually unwound. The underlying supply and demand dynamics related to South Korea's fundamentals should remain solid, and if foreign investors shift to net buyers of Korean stocks, the won's recovery could proceed faster than anticipated."
However, some institutions still anticipate further weakening of the won. Foreign investors net sold a record 23.8 billion dollars worth of Kospi index stocks in March, intensifying downward pressure on the currency. Maybank foreign exchange strategist Sean Lim noted that the current ceasefire appears fragile, suggesting the won could fall to 1,500 by the end of the quarter. He commented, "Considering two-way risks, the Strait of Hormuz will not reopen overnight, and even if it does, oil production will require time to normalize. Any breakdown in the ceasefire agreement would support the US dollar."
Nevertheless, overseas investors have been net buyers of South Korean stocks for two consecutive trading days, with purchases reaching 1.3 billion dollars on Wednesday. NH Investment & Securities economist Ahmin Kwon added that strong first-quarter corporate earnings may underpin the return of capital. She indicated that the current exchange rate level, combined with robust corporate profitability, could appear particularly attractive to foreign investors.
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