Electronic signage is shown at Morgan Stanley headquarters in New York, March 2021. AP-Yonhap
Kathleen Oh, Morgan Stanley's chief Korea and Taiwan economist / Courtesy of Morgan Stanley
HONG KONG — Korea’s National Pension Service (NPS) is poised to become the most influential factor in the country’s foreign exchange market this year, potentially acting as a “game changer” in boosting the won, according to Morgan Stanley.
Two major policy shifts are expected from the state-run fund, focused on its foreign exchange hedging ratio and asset allocation strategy, said Kathleen Oh, the investment bank’s chief economist for Korea and Taiwan.
The NPS has maintained a 0 percent hedging ratio, leaving its assets fully exposed to currency fluctuations. At the same time, its allocation to overseas investments has steadily increased. As of November 2025, overseas assets made up 59.6 percent of its total assets under management (AUM) of 1,438 trillion won ($997.4 billion).
"We do think the changes could be announced earlier than May this year, which is the usual timing of the announcement of the allocation, and the adjustments to hedging strategy could be possible," Oh said in a recent interview with The Korea Times, adding that a clearer picture will emerge with the appointment of a new CIO.
The Korean won struggled in 2025, becoming one of Asia’s worst-performing currencies. The exchange rate briefly rose past 1,480 won per dollar on Dec. 23, 2025, reaching levels comparable to those seen during the political uncertainty following former President Yoon Suk Yeol’s martial law declaration in December 2024.
Oh noted that Korea recorded a $105 billion trade surplus in 2025, yet market participants’ hedging activities were misaligned with capital inflow dynamics. Meanwhile, retail investor outflows nearly doubled to $51 billion in 2025 from $26 billion a year earlier, alongside the NPS’ substantial unhedged overseas exposure.
"The imbalance in the hedging activities, as well as the large marginal pick up in the outflow had a faster impact on the Korean won versus the inflow of the dollar," Oh said, adding that the Japanese yen's fluctuations also impacted the Korean currency's movement in early 2026.
Looking ahead, Morgan Stanley forecasts the won-dollar exchange rate to fall to 1,430 in the first quarter of 2026 and to 1,410 in the second quarter.
Source: Korea Times News
