INTERVIEW Korean won to strengthen in H2 despite continued US stock buying, US-bound corporate investments

Benson Wu, Korea and China economist at Bank of America (BofA) Global Research in Hong Kong / Courtesy of BofA Global Research

By Lee Kyung-min

• Published Jan 21, 2026 10:27 AM KST

Domestic spending, construction investment to pick up later this year: Bank of America economist

Despite growing oncerns over the Korean currency’s rapid depreciation toward the 1,500 won per dollar level, a Bank of America (BofA) Global Research economist is painting a rosier outlook for the local currency.

“We remain relatively optimistic for the Korean currency in coming quarters on the back of broader U.S. dollar weakening. We expect the won to hover at 1,395 won by year-end 2026,” Benson Wu, Korea and China economist at BofA Global Research, said in an interview with The Korea Times.

Import price inflation was relatively low at around 1 percent as of last month even as Korean currency depreciated, he said, although it typically takes a few months to pass through to imported goods inflation.

“In a Bank of Korea (BOK) paper in 2022, they estimate that 10 percent depreciation in the Korean currency would boost headline consumer price inflation by 0.6 percentage points. But the central bank said last month that the figure would lead to 0.3 percentage points," he said. "The BOK raised their concern on foreign exchange (FX) pressure on inflation in the monetary policy meetings in late last year and this January. However, they still forecast headline inflation to stick around 2 percent in 2026, similar to our forecast, suggesting the expected impact is limited.”

Still, the currency depreciation is the largest headwind for the Korean economy this year, he added. “The biggest headwind could be the sustained Korean currency outflow, sourced from persistent household financial investment overseas and sizable U.S.-bound direct investment from Korean corporates amid trade deals under the Trump administration. Such pressure could weigh on the already weakened currency and limit the expected monetary policy easing.”

The assessment coincides with sustained increase in U.S. equity holdings by Korean retail investors.

According to Korea Securities Depository data, the U.S. stock holdings by retail investors in Korea exceeded $170.5 billion as of Jan. 15, up $6.9 billion in just two weeks.

The figure is on a steady rise, up from $44.2 billion at the end of 2022. It then rose to $68 billion the following year before surging further to $112.1 billion in 2024.

The biggest tailwind for the Korean economy would be the stronger-than-expected DRAM demand, according to the Hong Kong-based economist.

DRAM, short for dynamic random access memory, is a type of computer memory. It is the main working memory that enables computers and artificial intelligence (AI) systems to run fast and efficiently.

“With the upswing of global AI capital expenditure (capex) cycle, a substantial part of DRAM demands would lift tech exports through 2026," he said. "Our current growth forecast is already priced in up to 40 percent rise in DRAM sales in 2026, but a stronger demand is also likely if optimism rises further.”

Chip-reliant growth heads toward balanced recovery

Korea’s growth is being driven largely by semiconductors, while domestic consumption, especially in the construction sector, continues to lag.

The current imbalance has been going on for some time, he acknowledged, as almost half of headline gross domestic product (GDP) growth in 2025 was driven by the external sector, especially semiconductors.

“It is concerning to a certain extent as spillover from the semi sector to the rest of the economy tends to be limited, given its limited linkage to the service sectors,” he said.

However, he expects the situation to improve this year, with a more balanced recovery on the way.

“In particular, consumption is set to pick up on wealth effect and policy support, while construction investment is also likely to see more meaningful recovery especially from the second half of this year, as suggested by rising housing permits.”

J.P. Morgan suggested the KOSPI surpassing 6,000 points is possible in a bull scenario and 5,000 points is possible in a base-case scenario.

This view is shared with the BofA Global Research, he said. “We remain constructive on the Korea equity market in the coming year. The global tech sentiment is vital to KOSPI as well as the continued capital market reform. Foreign investors are positive about the latest reform steps introduced by the current Lee Jae Myung administration.”

BOK’s forward guidance

The BOK’s forward guidance policy is helpful, the economist added.

“Comparing with other central banks in the emerging market, we do see the market is valuing BOK’s forward guidance policies. We can learn the rate-setting monetary policy committee’s stance towards coming two meetings during the committee meeting day and to know how each member weighs different factors when making their individual decision from the meeting minutes released at a later date.”

The central bank's move to outline a Korean-style “K-dot plot” like the U.S Federal Reserve has both upsides and downsides, in his view.

“It would improve policy transparency if it were to be rolled out, but we are also not sure how much it could guide market expectation and reduce disparity," he said “The problem of this one-year head dot plot is that it could change substantially when shocks come, just like the Fed, so that it may not be useful in anchoring market expectation during volatile times.”

The economist projected that Korea’s GDP will accelerate to 1.9 percent in 2026 from the estimated 1 percent in 2025, with a more balanced recovery ahead.

“Risks seem relatively balanced, while the potential FX impact of U.S.-Korea investment deal implementation remains key to watch," he said.