Weak won helped Korea's growth in 2025: HSBC

HSBC's logo is seen in this illustration taken January 7. Reuters-Yonhap

HSBC's Chief Asia Economist Frederic Neumann, left, and Head of Asia FX Research Joey Chew / Courtesy of HSBC

HONG KONG — Last year's currency depreciation has strengthened export competitiveness and contributed to growth, HSBC said Monday.

"We do not believe that the weak won itself was a challenge for Korea’s economic performance — rather, it likely supported it over the past year," said Frederic Neumann, HSBC's Chief Asia Economist, during a virtual press conference for the HSBC Asian Outlook 2026 on Monday.

Neumann explained that the won's weakness helped Korean exporters remain competitive, especially as global commodity prices — particularly oil — have stabilized, reducing inflationary pressure. Despite unfavorable conditions such as tariff frictions with the United States, Korea’s exports surpassed $700 billion for the first time in 2025.

However, Neumann warned that concerns over a weak currency could prevent the Bank of Korea (BOK) from cutting interest rates, limiting the monetary easing needed to sustain growth. BOK has kept its key policy rate unchanged for five consecutive meetings, citing concerns over the weakening won. Some market watchers believe the easing cycle has effectively come to an end.

Looking ahead to 2026, HSBC views the Korean won as one of the few currencies likely to rebound after last year’s steep depreciation. It also gave a positive assessment of the Korean government’s efforts to stem capital outflows related to overseas investments.

Joey Chew, head of Asia FX research at HSBC, noted that there would be a direct foreign exchange impact when investors sell U.S. stocks and convert the proceeds into Korean won to buy local equities. Beyond this immediate effect, she added, more exporters could be encouraged to sell dollars, while foreign investors may be drawn to Korean assets, joining the trend already led by domestic retail investors.

"This could create a rolling effect and really help the Korean won recover from its excessive weakness last year,” Chew said. "At this moment, we still need to see the proper implementation of the measures. Assuming a lot of these measures do get passed, our view is a modest recovery in the Korean won in the first few months of this year."

The Korean won was one of the worst-performing currencies in Asia last year. In October 2025, Korea’s real effective exchange rate plunged to a 16-year low, according to data from the Bank for International Settlements.

Foreign exchange authorities attributed the decline to rising capital outflows linked to overseas investments. In response, the government has announced plans to offer tax incentives on capital gains from foreign stock sales — provided the proceeds are reinvested in domestic equities for at least one year. Authorities are also considering allowing the introduction of leveraged exchange-traded funds that track specific domestic stock indices at three times the rate.