The Undervalued Tigers: Why TWD and KRW Are Asia's Top Currency Plays in 2025

The Asian currency landscape in 2025 is a mosaic of contrasts: while some emerging markets grapple with inflation and fiscal fragility, the Taiwanese Dollar (TWD) and South Korean Won (KRW) stand out as outliers. Both currencies are undervalued according to their Real Effective Exchange Rates (REER), buoyed by robust current account surpluses, insurer-driven capital inflows, and policy support. Yet they remain underappreciated by global investors—a gap that could prove lucrative.

The Case for TWD: Insurer Momentum and Tech Dominance

Taiwan's REER, adjusted for inflation and trade weights, currently sits at 105—a 5% undervaluation relative to its 2020 baseline—according to Bank for International Settlements (BIS) methodology. This reflects a currency held back by fears of global slowdowns, even as Taiwan's $60 billion annual current account surplus (equivalent to 12% of GDP) suggests inherent strength.

The key catalyst? Institutional buying by global insurers and pension funds. Taiwan's tech sector—dominated by TSMC, Foxconn, and ASML partners—continues to command premium pricing for semiconductors, creating a cash-rich ecosystem. Insurers, seeking yield in a low-rate world, have poured $15 billion into Taiwanese bonds this year, driving TWD appreciation.

Critics point to Taiwan's reliance on energy imports, which could strain its trade balance if oil prices spike. Yet Taiwan's hedging strategies—such as its $600 billion foreign exchange reserves—mitigate this risk.

KRW's Turnaround: Policy Support and Structural Shifts

South Korea's KRW, often overshadowed by its volatile stock market, is quietly making strides. Its REER, calculated using BIS's trade-weighted index, remains at 100 (2020=100), despite a $50 billion current account surplus in 2024. The Bank of Korea (BOK) has slashed rates to 2.75%, stabilizing growth while keeping the won competitive.

What's driving this? Semiconductor-driven exports and a pivot toward AI infrastructure. Samsung's AI chip partnerships and SK Hynix's memory upgrades have insulated South Korea's trade balance, even as automotive exports decline. Meanwhile, the KRW's low correlation with USD movements (historically 0.45) makes it an ideal diversification tool.

Common Tailwinds: Capital Inflows and De-Hedging Trends

Both currencies benefit from a broader shift in global capital flows. Institutional investors, burned by overexposure to the dollar, are de-hedging and reallocating to Asian currencies with positive carry. Taiwan and South Korea's foreign portfolio inflows (up 30% YTD) reflect this trend.

The Risks: Oil and Trade Tensions

No investment is risk-free. A sustained oil price surge—say, above $90/barrel—could pressure Taiwan and South Korea's trade balances, given their energy dependence. Additionally, U.S. tariffs on Korean steel and Taiwanese semiconductors, though currently paused, could resurface.

Investment Thesis: Buy TWD/KRW Now for Capital Appreciation and Diversification

The case for these currencies is compelling:
1. Undervaluation: Both are trading below their REER equilibrium, offering a cushion for appreciation.
2. Current Account Surpluses: Self-sustaining trade dynamics shield them from external deficits.
3. Low Volatility: Institutional demand and central bank policies stabilize their trajectories.

Action Items for Investors:
- Allocate 5-7% of a global portfolio to TWD/KRW-denominated bonds, targeting yields of 3-4% in a low-rate environment.
- Use FX forwards to lock in current rates, hedging against near-term volatility.
- Avoid overexposure to equities: Focus on currency exposure via ETFs like FXTH (Taiwan) or KWON (South Korea).

Conclusion: The Tigers Are Roaring—Don't Miss the Rally

In an era of geopolitical fragmentation and dollar fatigue, Taiwan and South Korea's currencies offer a rare blend of value, safety, and growth. While risks like oil prices loom, the structural and cyclical tailwinds favor appreciation. For investors seeking diversification beyond the U.S. and Europe, the TWD and KRW are 2025's hidden gems.