Bank of America cautions that the South Korean won faces renewed downward pressure as outbound direct investment accelerates, even as the nation continues to benefit from a strong trade surplus fueled by the semiconductor cycle.
According to the bank, Korea’s outbound direct investment rose to $72 billion in 2025, with a clear reorientation toward developed-market destinations. The United States has emerged as the largest recipient in recent years, and Europe has also seen increased inflows. By contrast, investment into China has declined on a structural basis, while ASEAN economies are appearing more frequently as alternative destinations.
The composition of outbound investment has shifted as well. Manufacturing represents under one-quarter of total outbound direct investment, while finance and insurance sectors account for the largest share. This changing mix matters for the capital account because financing patterns and expected returns differ across sectors.
Bank of America anticipates a notable jump in U.S.-bound manufacturing investment following the U.S.-Korea investment agreement signed last year. The commitment implied by that deal equates to roughly 80% of Korea’s typical annual foreign direct investment to the United States and is about four times the current level of Korean manufacturing investment directed to the U.S. The bank points to recent Japanese investment announcements into the U.S. as a reference point for possible scale and sequencing, noting that such projects are likely to be announced in stages and that funding could come from multiple sources beyond equity.
While Korea has drawn substantial foreign direct investment in recent years, Bank of America argues that these inward flows are unlikely to fully counterbalance the widening direct investment deficit. That deficit, when combined with ongoing portfolio outflows, increases strain on the capital account.
In the bank’s view, persistent portfolio outflows remain a principal driver of won weakness. Outbound direct investment represents an additional, and less frequently discussed, source of pressure on the currency. Together, these capital movements point to a continued vulnerability of the won despite external strengths provided by trade.
The situation presents a mix of mitigating and amplifying factors. A strong trade surplus tied to semiconductors supports external balances, yet the scale and direction of capital flows - both portfolio and direct - are creating offsetting pressures on the currency and the broader capital account.