South Korean Won, Stocks Gain as North’s Launch Failed
South Korea’s won rebounded from a three-month low and stocks rallied as the government said a rocket launch by North Korea failed.
The won gained 0.5 percent to 1,134.45 per dollar as of 11:11 a.m. in Seoul, according to data compiled by Bloomberg. It touched a one-week high of 1,131.25 earlier. The Kospi (KOSPI) stock index advanced 0.8 percent to 2,002.94. North Korea fired the rocket from its Sohae Satellite Launching Station at about 7:39 a.m. today and it exploded within minutes, South Korean Defense Ministry said in Seoul.
“Investors are just shrugging off this launch,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “The news came out before the market opened that the rocket launch failed, so investors didn’t have to worry about it.”
The Standard & Poor’s 500 Index added 1.4 percent in New York yesterday as U.S. policy makers signaled borrowing costs will stay low. South Korea’s government bonds were little changed as the central bank kept its benchmark interest rate unchanged at 3.25 percent for a 10th month at a review today. The decision was forecast by all 13 economists surveyed by Bloomberg News.
The currency touched 1,144.88 yesterday, the weakest since Jan. 18. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, declined 40 basis points, or 0.4 percentage point, to 8.63 percent today.
“This would be the way a rocket launch would affect the market the least as it happened before onshore markets opened in Korea, and also it fell into the sea right after launch,” said Ryoo Hyun Jung, a Seoul-based chief currency dealer at Citibank Korea Inc. “Markets will reflect U.S. stock gains.”
The North has said the projectile was to carry a satellite into orbit as part of celebrations marking the centennial of state founder Kim Il Sung. It acted in defiance of international pressure including U.S. warnings that doing so would nullify a food aid deal to the impoverished nation.
The U.S. military tracked the launch of a North Korean rocket and said that its first stage tumbled into the Yellow Sea 165 kilometers (102 miles) west of Seoul and the “remaining stages were assessed to have failed,” it said in a statement.
South Korea’s central bank will closely monitor stocks, bonds and currency markets, Deputy Governor Park Won Shik said at an emergency meeting in Seoul today. The military is monitoring for any further missile tests and for a potential nuclear test by the North, Major General Shin Won Sik, the director of policy planning at the defense ministry, said in a televised briefing in Seoul.
Victek Co. (065450) led declines in South Korea’s defense-related stocks. The maker of electronic warfare equipment plunged 12 percent to 2,365 won. Huneed Technologies (005870), a military communication equipment maker, slipped 11 percent to 3,480 won.
“Markets see this as posturing rather than as a genuine threat,” said Prasad Patkar, who helps oversee about $1 billion at Platypus Asset Management Ltd. in Sydney. “North Korea is a pest we’ve gotten used to. Life goes on.”
Federal Reserve Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed the view that borrowing costs will stay low through 2014 yesterday, with Dudley noting it’s “still too soon to conclude that we are out of the woods.”
The yield on South Korea’s 3.25 percent bonds due December 2014 was 3.50 percent, unchanged from yesterday, Korea Exchange Inc. prices show. Three-year debt futures fell 0.01 to 104.01 and the one-year interest-rate swap was little changed at 3.51 percent.