AI Mania to Boost Korean Won as Analysts Bet Chip Slump Will End

A tentative rebound in the South Korean won may get an additional tailwind in the second half of the year thanks to the global boom in artificial intelligence.

(Bloomberg) — A tentative rebound in the South Korean won may get an additional tailwind in the second half of the year thanks to the global boom in artificial intelligence.

That’s expected to boost exports of Korean semiconductors, which in turn will help improve the country’s terms of trade. Analysts from Goldman Sachs Group Inc., HSBC Holdings Plc and Nomura Holdings Inc. have touted a turn in the chip cycle as a plus for the won in recent research with the latter specifically mentioning the secular AI investment theme in a note last month.

While the global memory chip industry is in the midst of a downcycle amid a pullback in demand for smartphones and computers, investors are betting that generative AI will drive new sales. 

“We should potentially see more meaningful recovery in the won if we do get a turnaround in the semiconductor downcycle,” said Christopher Wong, an FX strategist at Oversea-Chinese Banking Corp., who sees the currency strengthening by the end of the year.

The Korean currency has climbed about 4% this month to pare most of its losses for the year. At around the 1,265 per dollar level Thursday, it’s expected to strengthen to the 1,250 level by the first quarter of next year, according to the median forecast in a Bloomberg survey.

An Young-jin, an economist at SK Securities Co. expects the currency’s rally to be concentrated in the fourth quarter of this year, when it could climb to 1,200 per dollar.

“We generally have a stronger view on the chip cycle rebound compared to most other firms and we expect the turnaround to be one of the main drivers for the won’s recovery in the second-half along with the dollar’s weakness,” An said. “The slump in chip prices are likely to ease and may even turn to a plus at the end of the year, which is a positive for Korea’s trade balance,” he said. 

South Korean exports of chips dropped 28% in June after falling 36% in May. But a recovery is expected to materialize into the end of the year as production cuts takes effect and demand for AI services increase, the Bank of Korea said in a blog post citing major firms and agencies.

Of course the chip sector is not the primary driver of the won. There are still risks to its outlook, with gains tempered by uncertainty around Federal Reserve monetary policy, according to Andy Ji, a currency strategist at InTouch Capital Markets Pte Ltd. 

But for Kim Seunghyuk, an FX analyst at NH Futures Co., the anticipated recovery in the chip sector, combined with easing global inflation and an expected improvement in China’s economy will feed through to the Korean currency.

“Markets now broadly believe the slump in chips is in the process of bottoming out,” and that view is helping the won, he said.

–With assistance from Hooyeon Kim.

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