Emerging Markets Spotlight – June 2026

Key Points

• South Korea’s semiconductor boom has driven record exports and one of the largest current account surpluses in emerging markets, yet the won remains near multi-decade lows.
• The apparent contradiction reflects capital flows rather than trade flows, as Korean investors continue to direct substantial savings into overseas assets.
• The won already appeared modestly undervalued under IMF methodologies at the end of 2024 and has weakened further despite strengthening external fundamentals.
• We remain exposed to the beneficiaries of the AI investment cycle while recognising the increasing medium-term attractiveness of the Korean currency.

In one of the more unusual current developments in emerging markets, South Korea is experiencing a powerful export boom driven by global demand for artificial intelligence infrastructure, yet the Korean won continues to trade close to its weakest levels in decades.

South Korea’s latest trade data confirms the strength of the current semiconductor cycle. Exports reached a record USD 87.8bn in May, rising 53% year-on-year and comfortably exceeding expectations.¹ Semiconductor exports increased by 169%.¹ The benefits are increasingly extending beyond semiconductors, with non-semiconductor exports gaining momentum and manufacturing activity reaching its strongest level in more than five years. This has transformed Korea’s external accounts. The current account surplus rose from 1.8% of GDP in 2023 to 6.6% in 2025 as semiconductor exports recovered sharply.¹ The Bank of Korea expects the semiconductor boom to more than offset the economic drag from higher energy prices stemming from tensions in the Middle East. Under normal circumstances, such a combination of strong exports, rising corporate profitability and large external surpluses would be expected to support a stronger currency.

Instead, the won has continued to weaken. In our view, this reflects the dominance of capital flows over trade flows. Korean investors have become substantial buyers of overseas assets, particularly US equities. Domestic savings are increasingly being deployed overseas, while a growing share of the foreign currency revenues generated by Korean exporters are being retained offshore rather than repatriated and converted into won. As a result, sizeable trade surpluses have coincided with persistent capital outflows.

The result is the emergence of “DRAM dollars”, analogous to the petrodollars generated by major energy exporters. Korea’s semiconductor sector is generating vast dollar earnings, currency but an increasing share of those proceeds is not being converted back into won. At the same time, strong performance in overseas equity markets and a weaker won have reinforced the attractiveness of foreign assets for domestic investors, creating a self reinforcing cycle of capital outflows.

The won is cheap, but not outrageously so. In its 2025 External Sector Report, the IMF concluded that Korea’s external position in 2024 was broadly consistent with medium-term fundamentals and desirable policies, particularly noting Korea’s need to run a large current account surplus in order “to build precautionary savings to meet aging-related needs and an orderly deleveraging of private debt”.² Since that assessment, the real effective exchange rate has fallen by a further 8%, while semiconductor exports and current account dynamics have strengthened.

The portfolio remains substantially exposed to the beneficiaries of the AI investment cycle, including Samsung Electronics and SK Hynix, both directly and indirectly. We remain heavily underweight the rest of the Korean market, where the transmission of semiconductor success into broader earnings growth is less certain. We also remain underweight the won given the export exposure already embedded within our holdings. Nevertheless, the combination of a large current account surplus, strong export momentum and increasingly attractive valuation suggests that the medium-term outlook for the Korean currency is becoming progressively more favourable.

Source: ¹Bloomberg. ²IMF.

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