The South Korean government has announced FX market stabilization measures, including raising FX hedging limits and permitting investments in Kimchi bonds by domestic institutions.
In 2024, the won fell over 12% against the U.S. dollar, and the KOSPI index dropped by 9.6%.
South Korea's net overseas investment position reached a record high of $1.1 trillion in 2024.
Opinion
While these new measures may help to temporarily stabilize market sentiment, many analysts agree that without deeper structural reforms in industry and overall economic policy, the underlying imbalances will persist.
Core Sell Point
The recent FX policies provide a short-term cushion for the market, but significant, fundamental economic reforms remain essential for long-term stability and growth.
In a bid to enhance foreign currency inflows and stabilize the weakening won, the South Korean government has recently unveiled a series of foreign exchange measures. These include raising hedging limits for FX derivatives, permitting domestic institutions to invest in foreign currency-denominated “Kimchi bonds,” and streamlining tax filing processes for foreign investors.
These policy adjustments come as a response to the won’s significant decline—dropping over 12% against the U.S. dollar last year—and a 9.6% fall in the KOSPI index, underscoring an imbalanced FX market. Notably, data reveals that in 2024, the net foreign investment position held by Koreans reached a record $1.1 trillion, indicating a growing lack of confidence in domestic financial markets.
However, experts warn that while these measures might offer short-term market stabilization, they will have limited long-term effect unless accompanied by more comprehensive reforms. Min Gyeong-won, an economist at Woori Bank, commented that without additional policies to support industrial and corporate sectors, attracting sustained foreign investment will remain a challenge.
Moon Hong-Cheol, a strategist at DB Financial Investment, echoed this sentiment, emphasizing that the current adjustments alone are insufficient to address the underlying weaknesses of the won. He stressed the necessity for broader economic policy changes to achieve lasting improvements.
