The Korean won may rebound back to levels seen before the US-Iran war in the second quarter because of lower oil prices and foreign inflows to stocks, strategists said.
The currency will climb to 1,420 a dollar, implying a 4% gain from current levels, according to Woori Bank. NH Investment & Securities and KB Kookmin Bank see it at around 1,450, compared with 1,440 before the conflict. The won fell as much as 0.5% on Thursday to 1,484.55, after seven straight sessions of advances.
Plunging oil prices are easing pressure on South Korea, which is heavily dependent on imports, and other Asian markets, which rebounded Wednesday. There are signs of a return of global capital into its stock market this week as well. With the currency having tested extreme levels and signs of easing Middle East tensions, expectations are growing for a rebound.
“Overexposure to the dollar will unwind if Middle East uncertainties ease,” said Gyeong-Won Min, economist at Woori Bank. “Underlying demand and supply conditions tied to Korea’s fundamentals should remain solid, and if foreign investors turn to net buying of Korean equities, the won could rebound faster than expected.”
However, some still expect a weaker won. Foreign investors were record net sellers of $23.8 billion of Kospi shares in March, intensifying depreciation pressure on the currency. Shaun Lim, an FX strategist at Malayan Banking Berhad, said the ceasefire appears fragile and the won might end the quarter around 1,500.
“Given the two-way risks, the Strait of Hormuz won’t reopen overnight, and even then, oil production will take time to normalize,” he said. “Any breach of the ceasefire would also support the dollar.”
But overseas investors have been net buyers for two straight sessions, purchasing $1.3 billion on Wednesday.
What’s more, strong first-quarter earnings may support a rebound in inflows, said Ahmin Kwon, economist at NH Investment & Securities. Current FX levels, combined with solid corporate earnings, may look like a bargain to overseas investors, she added.
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