Strategists are raising their forecasts for South Korea's won at a faster pace than any other currency in the world on bets that the country's new president will tolerate appreciation driven by capital inflows and an economic recovery.
Analysts have bolstered their median predictions for the end of next year by 3.3 per cent since September 30, the most among 65 global currency pairs tracked by Bloomberg.
The won, which has advanced 7.3 per cent versus the American dollar this year, will strengthen an additional 2.7 per cent in 12 months to its highest level since August 2008, a Bloomberg survey shows.
Park Geun-hye, who is the daughter of the nation's longest-serving dictator and takes office in February after winning election on December 19, has called for curbing the dominance of conglomerates such as Samsung and Hyundai that account for most of the nation's exports to support smaller competitors.
"The new government may be a little more tolerant of won gains," said Eric Stein, a portfolio manager at Eaton Vance Management in Boston, which oversees US$198 billion including won-denominated assets.
"The won remains an attractive currency for us to invest in as it's still undervalued vis-à-vis the dollar, the euro and the yen."
The won is the best performer of the 11 most-traded currencies in Asia this year, fuelled by a trade surplus and rising foreign investment.
Strategists at HSBC Holdings raised their estimate for next year for the won this month to 1,030 per dollar from 1,050 because they forecast less intervention by the central bank and that the improving economic outlook will attract overseas capital.
While the central bank governor Kim Choong-soo said last week that "appropriate" action on won volatility would be taken if needed, such a warning was aimed to slow down the currency rally rather than reverse it, according to Erik Lueth, a senior regional economist at Royal Bank of Scotland.
* Bloomberg News