UBS maintains a bullish outlook on the South Korean won, arguing that a combination of valuation misalignment and stronger balance of payments flows could exert downward pressure on the USD/KRW exchange rate in the second half of 2026.
In a note that reviewed March balance of payments flows, UBS pointed to two valuation signals as support for a stronger won. First, the currency trades more than 5% cheap relative to export share. Second, the JPY/KRW cross stands about 8% rich when compared to its historical relationship with the ratio of cyclical versus defensive equities. The bank also flagged memory-led export growth as a pivotal demand driver, projecting export strength to exceed 250% year-over-year in 2026.
On the external position, UBS expects South Korea's current account surplus to remain above 10% of gross domestic product. The bank also highlighted the expected inclusion of Korean Treasury Bonds in the World Government Bond Index as a factor that should further support capital inflows into Korean assets.
Quantitatively, UBS estimates that balance of payments conditions could improve by at least 5 to 6 percentage points in 2026 compared with 2025. The firm packaged its findings as five takeaways drawn from March flows and used those results to inform its currency outlook.
Drawing these elements together, UBS's forecast targets the USD/KRW rate falling below the 1400 level during the second half of 2026. The bank presents this as a function of valuation correction, substantial export momentum led by memory products, and inflows tied to bond-index inclusion and a sustained current account surplus.
Summary
UBS argues the won is materially undervalued versus export share and certain equity relationships, expects memory-driven export growth to be very strong in 2026, and projects a notable improvement in balance of payments flows that could help push USD/KRW beneath 1400 in H2 2026.
Key points
- Valuation: Won trades over 5% cheap relative to export share, and the JPY/KRW cross is about 8% high versus its historical link to cyclical/defensive equity ratios - relevant for FX and equity market positioning.
- Export outlook: UBS forecasts memory-led export growth to exceed 250% year-over-year in 2026 - directly relevant to semiconductor and export-oriented sectors.
- External flows and bonds: Current account surplus is projected to stay above 10% of GDP, and inclusion of Korean Treasury Bonds in the World Government Bond Index is expected to support inflows - important for fixed income and sovereign bond markets.
Risks and uncertainties
- Forecast risk: The projection that USD/KRW will decline below 1400 in H2 2026 is UBS's forecast and depends on the balance of payments and export outcomes materializing as expected - this affects FX traders and exporters.
- Balance of payments estimate: The estimate that flows could improve by at least 5 to 6 percentage points in 2026 relative to 2025 is an expectation subject to change based on actual monthly flows and trade performance - this bears on external sector-sensitive assets.
- Concentration risk: The outlook relies heavily on memory-led export growth exceeding 250% year-over-year, which concentrates dependence on a single high-cyclic sector and could influence equity and commodity-related markets should conditions differ.