In a new research note published August 10, 2026, Deutsche Bank strategists Perry Kojodjojo and Chen Kan lay out a compelling case that Korea is not a story in transition — it is a story in acceleration. The report, titled "Korea: From Industrialization to Internationalization," identifies a structural convergence that puts Korea at the centre of several of the most powerful capital flows reshaping the global economy.
The thesis is direct and worth stating plainly: Korea already has what the rest of the world is now trying to build, and it is being paid for it.
The Structural Tailwinds Are Real
Kojodjojo and Chen observe that "re-industrialization, AI infrastructure investment and supply-chain diversification are directing capital toward industries where Korea already possesses scale, technological leadership and established industrial ecosystems." This is not a cyclical tailwind. The authors identify three distinct structural forces converging simultaneously in Korea's favour.
First, reshoring and rearmament. Semiconductors, shipbuilding, defence equipment, batteries and critical minerals have all become central to national-security and supply-chain strategies across advanced economies. Korea supplies all of them. Second, the AI capital expenditure supercycle. Hyperscaler spending is estimated to be growing at close to 70% year-over-year through 2024 to 2026, driving demand for GPUs, HBM and DRAM. Samsung Electronics and SK Hynix sit at the centre of this cycle. Third, China de-risking. Western buyers are actively reducing exposure to Chinese supply chains across batteries, vessels, robotics and critical minerals. Korea, the authors argue, is "one of the few economies with both the industrial scale and geopolitical alignment to absorb some of the production, investment and market share being redirected away from China."
These are not separate stories. Korea sits at their intersection, and the authors are clear that this positioning is unlikely to fade quickly.
The Paradox: Industrial Giant, Financial Afterthought
Here is where the report becomes genuinely important for advisors and investors. Despite accounting for roughly 2% of global GDP, Korea's won accounts for approximately 0.9% of global FX turnover. Korean equities trade at a 12-month forward P/E of 6.9 — the lowest in the regional peer group presented, against comparable economies running multiples of 15 to 22. The authors are blunt: "Korea's economic influence has expanded much faster than its financial influence."
This is the valuation paradox. With 59% of exports in high-tech products, a current account surplus approaching 10.3% of GDP this year, and R&D expenditure among the highest in the world, Korea presents an economic profile that its financial markets have not yet priced. The won, on the authors' preferred FEER valuation framework, "is undervalued by approximately 10% in trade-weighted terms." Importantly, they note this estimate may prove conservative, because Korea's improving terms of trade increasingly reflect a structural terms-of-trade shock from AI-related semiconductor demand — not a cyclical uptick.
Internationalization: The Next Stage
Kojodjojo and Chen frame Korea's financial reform agenda as "the financial counterpart to Korea's industrialization." The objective is not reserve currency status and not a replica of China's offshore RMB architecture. Rather, policymakers are pursuing what the authors call a phased transition: first improving market accessibility for foreign investors, then expanding the offshore usability of the won itself, then gradually liberalizing capital-account restrictions within a controlled framework.
The reforms already in train are meaningful. Korea has moved to 24-hour dollar-won spot trading. Korean government bonds were included in the FTSE World Government Bond Index starting April 2026. Short-selling restrictions on MSCI-eligible equities were lifted. Offshore Won Settlement Institutions are being established to facilitate won-denominated transactions beyond Korean business hours.
The won's role in Korea's own trade settlement, however, remains strikingly small — around 3% of exports are settled in won. Japan, by comparison, settles roughly 33% of exports in yen. That gap is the opportunity, and it is the authors' contention that closing it is what internationalization is actually about.
What This Means in Practice
The authors are careful not to oversell the timeline. They note that "market adoption will ultimately determine the outcome." Industrial leadership, as they observe, is also not permanent. Korea remains dependent on imported energy and critical minerals, and Chinese competition is intensifying across batteries, shipbuilding and robotics. The re-industrialization story "depends not only on existing strengths, but also on its ability to sustain innovation, secure critical inputs and preserve its technological edge over the coming decade."
Still, the direction is clear, and the structure supports it.
5 Key Takeaways for Advisors and Investors
- Korea's industrial position is not a single-sector story. Semiconductors, shipbuilding, defence, EV batteries and nuclear energy represent a diversified cluster of globally competitive industries — each benefiting from independent structural tailwinds.
- Korean equities screen as among the cheapest in the Asia-Pacific region relative to industrial fundamentals, with a forward P/E of 6.9 and a P/B of 1.5 alongside meaningful ROE and one of the highest current account surpluses globally.
- The won appears materially undervalued on fundamental valuation frameworks, and the structural forces driving Korea's terms-of-trade improvement suggest the equilibrium exchange rate may be moving higher over the medium term.
- The internationalization roadmap — WGBI inclusion, extended FX trading hours, Euroclear connectivity, offshore settlement infrastructure — is already reducing operational friction for foreign investors in Korean bond and equity markets.
- The narrowing gap between Korea's economic footprint and its financial footprint is the central investment thesis. Progress will likely be measured not by reserve currency status, but by growing foreign participation in Korean capital markets and increasing won-denominated settlement in trade and funding.
Footnote: Kojodjojo, Perry, and Chen Kan. "Korea: From Industrialization to Internationalization." Deutsche Bank Research Institute, 10 Aug. 2026, https://www.dbresearch.com/PROD/IE-PROD/PDFVIEWER.calias?pdfViewerPdfUrl=PROD0000000000636829&rwnode=REPORT.
