The Korean Won's Moment: Hedge Funds Are Piling In Amid Taiwan's Currency Surge and De-Dollarisation Shifts

The New Taiwan Dollar's (TWD) historic surge in May 2025—bolstered by U.S.-Taiwan trade negotiations and market anxiety over conciliatory policy—has sent shockwaves through Asian currency markets. Yet, the spillover effects are not confined to Taiwan. South Korea's Won (KRW) has quietly emerged as a beneficiary of this regional revaluation dynamic, with hedge funds positioning aggressively to capitalize on its underappreciated upside.

Amid broader de-dollarisation trends, the KRW's appreciation is no accident. It reflects a confluence of Taiwan's currency crisis, regional shifts toward non-dollar trade settlements, and South Korea's strategic economic adjustments. For investors, this is a rare window to bet on a currency poised to outperform in an era of dollar volatility.

The Taiwan Effect: A Catalyst for Won Appreciation

Taiwan's TWD surged 5% against the USD by May 5, its highest level since 1988, as markets priced in U.S. trade pressures and geopolitical risks. This move wasn't isolated. ****
The KRW followed, climbing to 1,372.9 per USD by mid-May—its strongest in five months—driven by cross-border capital flows and hedging strategies. Taiwan's trade negotiations with the U.S. exposed vulnerabilities in its export-dependent economy (70% of GDP), but South Korea's diversified trade partnerships—particularly with China, Japan, and the U.S.—position it to weather similar pressures more robustly.

Hedge funds are noting this disparity. Managers like Kyle Bass and Paul Tudor Jones have reportedly accumulated KRW forwards, betting on its resilience. The logic? While Taiwan's conciliatory stance toward U.S. demands spooked investors, South Korea's more balanced diplomatic approach—balancing U.S. alliances with growing ties to China's tech sector—creates a safer haven for capital.

De-Dollarisation: A Structural Tailwind for the Won

The TWD-KRW correlation isn't just a temporary blip. It's part of a broader Asian de-dollarisation shift. *
Countries like Thailand and Malaysia are already reducing dollar dependency through local currency settlements. South Korea, meanwhile, is quietly advancing its own initiatives:
- *CBDC Integration: The Bank of Korea's digital won pilot, now testing cross-border interoperability with China's digital yuan, reduces reliance on USD-based SWIFT transfers.
- Trade Diversification: South Korea's 35% export share to China (vs. Taiwan's 35%) is being rebalanced through ASEAN partnerships, with won-yuan invoicing rising 15% in Q1 2025.
- Foreign Reserves Strategy: While FX reserves dipped to a five-year low in early 2025, the Bank of Korea's $65 billion forex swap line with the National Pension Service—a liquidity buffer—has stabilized investor confidence.

These moves are no accident. South Korea's central bank is actively steering the currency toward a “managed appreciation” path, using policy tools to offset the Won's volatility. The result? A currency that's 4% stronger year-to-date than the yen or Indonesian rupiah.

Policy Responses: Why the Bank of Korea Isn't Sabotaging the Rally

Critics argue that South Korea's 0.1% GDP growth in Q4 2024 and political instability (including a brief martial law episode) should weaken the Won. Yet, the Bank of Korea has signaled a shift:
- Rate Hikes on Hold: With inflation cooling to 2.1%, the BOK can afford to let the Won strengthen without hiking rates further.
- Foreign Inflows: Portfolio investments into KOSPI equities hit $12 billion in Q1 2025, a 30% rise over 2024, as global funds rotate into undervalued Asian assets.

This contrasts sharply with Taiwan's plight, where life insurers' hedging activities and U.S.-driven tariff threats risk destabilizing the TWD. South Korea's more diversified economy and proactive policy tools make its currency a safer bet.

Hedge Fund Playbook: How to Bet on the KRW

The KRW's rise isn't just a macro story—it's an actionable investment. Here's how to play it:
1. Currency Forwards: Institutions are buying KRW/USD forwards with 6-12 month tenors, locking in current rates before policy adjustments.
2. ETFs: The CurrencyShares Korean Won Trust (KWON) offers direct exposure, with a 2.5% dividend yield from short-term won deposits.
3. Equity Plays: South Korean tech exporters (e.g., Samsung Electronics, SK Hynix) benefit from a stronger Won via lower import costs and higher repatriated profits.

Risks and the Bottom Line

No bet is risk-free. A U.S.-China trade deal or a sudden reversal in Taiwan's policy stance could unsettle Asian currencies. Yet, the structural tailwinds for the KRW are too strong to ignore. With de-dollarisation accelerating and South Korea's fundamentals stabilizing, this is a currency primed for multiyear gains.

The message to investors is clear: The Korean Won isn't just a regional play—it's a global hedge against dollar fragility. Move now, or risk missing the ride.

This article is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.