Korean Won Weakens as Overseas Investors Reduce Equity Holdings in May

South Korea’s won declined for a second day after overseas investors sold 6.1 trillion won ($5.1 billion) more of the nation’s stocks than they bought in May, the biggest net sales in any month since January 2008.

Policy makers should wait for second-quarter economic data before raising interest rates as Europe’s sovereign debt crisis may delay some nations’ exit strategies, the Maeil Business Newspaper said yesterday, citing an interview with Finance Minister Yoon Jeung Hyun. Foreign investors bought 3.5 trillion more of Korean bonds than they sold last month even as they trimmed their holdings of the nation’s equities, the Financial Supervisory Service said yesterday.

“Too many fingers have been burnt in the $5 billion pulled out of Korean equities last month, so I don’t see foreign investors rushing back in,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “That’ll work against Korean equities and against the won, which is one of the most sensitive currencies to global sentiment.”

The won slid 0.2 percent to 1,204.3 per dollar as of 10:23 a.m. in Seoul, following last month’s 7.9 percent decline. Callow said he expects the currency to weaken to 1,280 by the end of this month.

South Korea’s exports increased 41.9 percent in May from a year earlier, the Ministry of Knowledge Economy said today. The median of 11 estimates in a Bloomberg News survey was for a 41.2 percent gain. The trade surplus widened to $4.4 billion from a revised $4.1 billion in April.

“Korea’s trade surplus is impressive, it’s certainly a positive for the recovery,” said Westpac’s Callow. “But Korean officials are talking about their concerns about Europe down the track, it’s obviously something that’s bothering them.”

Bonds Stable

The consumer price index increased 2.7 percent from a year earlier in May, after gaining 2.6 percent in April, separate data released today showed. The Bank of Korea is targeting annual inflation of 2 percent to 4 percent.

The yield on the 4.25 percent bond due December 2012 was little changed at 3.58 percent, according to the Korea Stock Exchange. The price climbed 0.02, or 2 won per 10,000 won face value, to 103.64. A basis point is 0.01 percentage point.

The nation’s benchmark interest rate has been at a record- low 2 percent since February last year. The board meets on June 10 to review policy.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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