Bar chart titled ‘General government gross debt (Percent of GDP, 2025).’ Japan has the highest debt at just over 200% of GDP. The United States and advanced economies are around 110–125%. Canada is slightly above 110%, the United Kingdom about 100%, the European Union about 80%, and Australia and Korea (Republic of Korea) are lowest at about 50%.
South Korea’s Positive Outlook: Addressing Geopolitical Turmoil with Credibility and Responsiveness
Reviewing the South Korean market with Jay Foraker
We maintain our positive outlook for South Korea based on current actions, recent momentum, and historical progress. Real GDP growth, according to the IMF, accelerated from 1.0% at the end of 2025 to 1.9% at the end of 1Q2026, with CPI up only 0.4% (from 2.1% to 2.5%) during the same period.1
Amid the unfolding Middle East crisis, South Korean officials in late March announced an extraordinary fiscal stimulus of 173 billion won (approximately 1% of GDP) to mitigate the shock caused by disruptions to energy supplies. 2This move is welcome given the country’s significant energy dependence. South Korea is the world’s fifth largest net importer of energy after China, the US, India, and Japan,3 with 20% of its liquified natural gas imported from Qatar and Oman4 and thus leaving it significantly exposed to supply disruptions.
The timeliness of the government’s response is only matched by its credibility: South Korea stands out among its peers as having comparatively lower debt levels, allowing it more room for fiscal response. Indeed, even in the wake of COVID stimulus and economic disruption, South Korea’s public debt only rose from 39.7% of GDP in 2019 to 52.3% in 2025 . It is forecast to remain below 60% for the next few years, which is favorable considering the average for countries designated by the IMF as Advanced Economies is 108 (see Figure 1) 5.
Figure 1: South Korea’s modest Debt/GDP Ratio Gives Fiscal Space to Respond to Crises
General government gross debt (Percent of GDP, 2025)
Further stimulus in the form of strategic investment will also maintain South Korea’s momentum. Announced in August 2025, the new administration’s Economic Growth Strategy has committed fiscal resources to 30 flagship technologies, AI, and innovation projects as well as to a new 150 trillion won ($101 billion) National Growth Fund.6 South Korea’s long history of industrial policy, dating to the 1960s, has helped it to establish itself as a global hub of technology exports and AI innovation today. This leadership is evidenced by its strong current account balance of 6.6% of GDP as of the end of 2025,7 which was led by goods (notably semiconductor) exports.8
It is therefore reasonable to expect that South Korea will continue to prioritize fiscal policy to stimulate demand rather than shifting to a more accommodative monetary policy, which will be supportive of the won. In April the Bank of Korea (BoK) left the policy rate unchanged at 2.50% for a seventh consecutive meeting, in a unanimous decision and with policy bias remaining somewhat neutral. The BoK, which will see a change in leadership in May, stressed that “uncertainty around the future path of inflation remains very high.”
It is also worth noting that South Korea recently achieved two important distinctions, which should lead to enhanced capital inflows, further supporting the won.
- FX and capital market reform has led to South Korea’s inclusion in the MSCI Developed Markets Index.
- South Korea’s inclusion in the FTSE Russell World Government Bond Index (WBGI) begins in April, with monthly increases in the inclusion weight until November. By then, Korea’s expected inclusion weight in the WGBI is 2.05%, making it the ninth largest among all included countries.
As noted in our previous MotM Quarterly, South Korea has the distinction of being one of a few countries that has successfully escaped the “middle income trap,” first achieving the IMF’s $13,875 per capita GDP (at current prices) in 1995. Since then, its strong growth has continued, with per capita GDP of over $37,000 today, which is expected to exceed $44,000 by 2030.9
Resilience against uncertainty
Longer-term structural headwinds – from demographics and dependence10 on unpredictable US trade policy – are not to be ignored. South Korea’s record of resilience, however, alleviates immediate concerns. Despite having the lowest birth rate in the world, (at 0.72 children per woman in 2023, according to the OECD11) South Korean authorities are addressing potential labor supply constraints directly by raising the retirement age from 60 to 65, while expanding visa quotas for skilled workers and extending visas for “high performing” seasonal migrant workers.12
More uncertain is how South Korea-US trade will evolve and warrants monitoring as a potential risk to the country’s growth prospects. Domestic political turmoil in South Korea during the first half of 2025 hampered its ability to respond to high-velocity changes in American trade policy, and overall exports to the US were down approximately 8% from late 2024 to late 202513. Further, under the trade deal reached last July, South Korea pledged to invest $350 billion in the US. Assuming the investment is spread over ten years, that works out to $35 billion per year, which would be roughly a third of South Korea’s current account surplus. Concrete details of such investments remain forthcoming . Meanwhile, South Korea gained little relief from the recent US Supreme Court tariffs decision, as it remains a target of US Section 301 trade investigations.
On balance and despite recent geopolitical turmoil, our outlook on the South Korean economy and the KRW continues to be strong given the South Korean government’s timely and credible responses to the Middle East crisis and successful history of investment-led growth.
Please contact Jay Foraker for further information.
1 https://www.imf.org/en/countries/kor
3 https://www.iea.org/countries/korea/energy-mix#where-does-korea-get-its-energy
4 https://keia.org/the-peninsula/the-iran-war-is-stress-testing-south-koreas-energy-model/
5 https://www.imf.org/external/datamapper/GGXWDG_NGDP@WEO/KOR/ADVEC/EU/AUS/CAN/JPN/GBR/USA
6 International Monetary Fund. Asia and Pacific Dept "Republic of Korea: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Korea", IMF Staff Country Reports 2025, 308 (2025), https://doi.org/10.5089/9798229029063.002, p.42.
7 https://www.imf.org/en/countries/kor
8 International Monetary Fund. Asia and Pacific Dept "Republic of Korea: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Korea", IMF Staff Country Reports 2025, 308 (2025), https://doi.org/10.5089/9798229029063.002, p.35.
9 https://www.imf.org/en/countries/kor
10 Before the Trump II administration, U.S.–South Korea bilateral trade (goods and services) was worth $239.6 billion in 2024, making the United States South Korea’s second-largest export market and South Korea the United States’ sixth-largest trade partner. https://ustr.gov/countries-regions/japan-korea-apec/korea
11 OECD (2024), OECD Economic Surveys: Korea 2024, OECD Publishing, Paris, https://doi.org/10.1787/c243e16a-en
13 https://www.csis.org/analysis/south-koreas-response-us-demands-minimize-risk-maximize-reward
Vietnam: Bridging new frontiers
From war torn nation to thriving economy, Vietnam is reinventing itself and attracting renewed attention from global investors.
Insights from Julian Bolton
Vietnam has come a long way since the end of its war in 1975, when the nation was left as one of the poorest in the world.
A look back
In 1986, the government introduced a series of economic and political reforms called Doi Moi - shifting to a market economy and setting the foundation for the trajectory of significant economic growth that has helped the country approach full emerging market (EM) status.
Last October, index and benchmark provider FTSE Russell announced Vietnam will be reclassified from Frontier to Secondary EM status with an effective date of September 2026, subject to an interim review in March 2026, after being on FTSE’s reclassification watchlist since 2018. This will place the market alongside India, Indonesia, and Philippines, among others and open new foreign investor flows into the market.
FTSE Russell highlighted the establishment of the non-prefunding model as a core driver for the move to EM status, providing sufficient progress in enabling access to global brokers. The next focus is to gain EM status on MSCI’s index hierarchy, which has a larger capital pool and stricter requirements, with Vietnam aiming to meet the upgrade criteria in 2030.
From frontier to secondary emerging market status
Prior to the FTSE announcement, both the FTSE and MSCI indices classified Vietnam as a Frontier market, preventing many investors from investing in it – particularly passive funds. The reclassifications may deliver significant benefits to Vietnam’s equity market, increasing investor inflows and liquidity, enabling further growth. The World Bank has estimated that these upgrades could bring foreign net inflows of $25 billion by 20301, the majority of which could come after the MSCI upgrade. Beyond market implications, achieving EM status elevates Vietnam on the global stage, strengthening the country’s voice in the region and among peers.
In November 2024, to enhance their chance to be elevated, Vietnam eliminated the requirement to fully pre-fund equity trades, removing a long-standing operational obstacle foreign investor had faced when investing into the Vietnam market. Previously, investors had to execute an FX transaction to purchase Vietnamese Dong (VND) before placing a securities trade. This process can tie up liquidity and leaves residual VND balances that required later repatriation, creating unwanted cash management complexity. This reform marked a significant step towards improving market accessibility and addressing a persistent barrier that was cited by FTSE and MSCI and that deterred many global investors from entering Vietnam’s stock market.
To advance its long-term objectives and in addition to the newly established non-prefunding (NPF) model, Vietnam has initiated measures to increase foreign ownership limits, establish a central clearing counterparty by 2027, and introduce securities lending programs. The market has also advanced technologically with the launch of the new Korea Exchange (KRX) trading system in mid-2025.
Next steps and challenges ahead
While the new NPF model marks meaningful progress for the market, it still comes with challenges. It requires an arrangement between investors and their brokers to establish trading limits. When the investor places their order, the broker checks the trading limits and confirms whether the trade is eligible for NPF or not. Due to this process, we’ve seen a slower adoption of the new model than initially anticipated. With investors wary of the new requirements, most clients have continued to prefund their equity trades.
At BBH, we are closely monitoring changes in Vietnam and collaborating with local providers to navigate evolving market dynamics.
Please contact Julian Bolton for further information
1Reuters, Vietnam set to launch new stocks trading system in bid for market upgrade
Vietnam: towards 2045
Elias Haddad
Vietnam aims to be a high-income country, defined as having a GDP per capita of between $15,000- $18,000, by 2045.
Achieving this will require Vietnam to grow at an average annual rate of roughly six percent over the next two decades. That is realistic given that Vietnam’s real GDP has averaged 6.5% in the last two decades and surged by 8.5% over 2025.1 The far greater challenge lies in escaping the so called ‘middle income trap,’ where countries fail to transition to high-income status.
Currently, 108 countries are classified as ‘middle-income’ with GDP per capita ranging from $1,136 to $13,845. The IMF estimates Vietnam’s GDP per capita at $4,745 in 20251. Over the last 34 years, only 34 economies have succeeded in breaking out of the middle-income trap, notably South Korea, Chile, and Poland (chart 1). All three nations boosted productivity by accelerating investment, introducing new ideas from abroad to their economies, and ultimately becoming innovators themselves.
A multi‑line chart showing GDP per capita from December 31, 1980 through December 31, 2030 for Poland, South Korea, Chile, China, and Vietnam. South Korea shows the strongest long‑term growth, rising from about 1,745 to over 44,000. Poland and Chile show steady but more moderate increases, with Poland climbing from around 1,600 to over 38,000 and Chile from about 2,600 to above 20,000 by 2030. China accelerates sharply beginning in the 2000s, growing from under 500 to nearly 19,000. Vietnam rises gradually from about 650 to more than 6,300. Two dotted horizontal lines mark the middle‑income range, and values after 2025 reflect IMF forecasts.
Vietnam’s government has already embarked on an ambitious reform agenda to improve productivity, upgrade key infrastructure, and boost domestic demand. That will be a gradual process. In the meantime, exports and foreign direct investment will remain key pillars of Vietnam’s growth strategy. That means the Vietnamese Dong (VND) faces structural downside pressure. Indeed, USD/VND has been trading at the upper end of its trading band (implying a weak VND) for over a year (chart 2).
A line chart tracking Vietnam’s USD/VND exchange rate from October 17, 2022 through January 16, 2026. The SBV reference rate (SBVNUSD) gradually increases from about 23,586 to over 26,380. Two parallel lines represent the +5% and –5% trading bands around this reference rate. The VND market rate fluctuates within or near these limits but generally trends upward in line with the reference rate. The chart highlights daily exchange‑rate movements within the central bank’s managed‑band system over the observed period.
As a background, the State Bank of Vietnam (SBV) manages the VND through a crawl-like[1] exchange rate arrangement. Since October 2022, the USD/VND trading band has been set at +/-5% from the daily reference rate. The daily reference rate is based on (i) the previous day’s weighted average USD/VND exchange rate; (ii) a weighted average of movements in VND exchange rates vis-à-vis seven other important trading partners’ currencies; and (iii) domestic macroeconomic factors.
1 A crawl-like arrangement is when the exchange rate remains within a "narrow margin of 2% relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers), and the exchange rate arrangement cannot be considered as floating. Source: IMF/Reuters. IMF reclassifies India's FX regime as 'crawl-like' from 'stabilized'. 26 November 2025.
All figures sourced from eLibrary
Changes to market dynamics in India
Win Thin and Derrick Leonard discuss the changes and opportunities ahead for investors in India including the T+0 settlement change, operational difficulties, and regulatory complexities.
1Reuters, Vietnam set to launch new stocks trading system in bid for market upgrade
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