Won Declines to One-Month Low on Geopolitical Risks: Seoul Mover

The won weakened to one-month low as geopolitical risks escalated after North Korea threatened to target the South Korea’s incoming defense minister. Government bonds and stocks declined.

Kim Byung Kwan, a former general who commanded the U.S.- South Korea Combined Forces, will be the “first target in the great war for national reunification,” the North Korea-based Committee for the Peaceful Reunification of Korea said in a statement carried by the official Korean Central News Agency yesterday. Kim said in his March 8 parliamentary confirmation hearing the South will respond to a North Korean artillery attack by toppling the regime, Yonhap News reported.

The won fell 0.4 percent to 1,095 per dollar as of the 3 p.m. close in Seoul, the lowest since Feb. 12, according to data compiled by Bloomberg. The currency earlier touched 1,102.65, a level unseen since Oct. 25. One-month implied volatility for the won, a measure of expected moves in the exchange rate used to price options, rose 92 basis points, or 0.92 percentage point, to 7.89 percent.

“The won is coming under selling pressure as the North Korean threat prompts dollar buying,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “Some exporters are waiting to settle their deals near the level, which may provide some buffer to the won.”

‘Swiftly Deploy’

The threats by North Korea follow the unanimous approval of tougher sanctions by the UN Security Council against the totalitarian state for its nuclear test last month. South Korea’s Vice Finance Minister Shin Je Yoon said March 9 the North’s impact on financial markets is limited and the government will “swiftly deploy” a contingency plan if needed.

The won also fell as the yen weakened 0.1 percent today against the dollar, after touching a 3 1/2 year low on March 8. South Korean carmakers, shipbuilders and electronics companies compete with Japanese rivals in overseas markets. South Korea’s currency won has gained 23 percent against its Japanese counterpart in the past one year to trade at 11.40 per yen, data compiled by Bloomberg shows.

Fitch Ratings cut its long-term foreign and local currency issuer default ratings for LG Electronics Inc. today to BBB-from BBB, citing the company’s weak operating margins and thin free cash flow.

The Kospi index of stocks declined as global investors sold more local shares than they bought for a third day amid signs that economic growth is weakening in China, South Korea’s biggest overseas market. China’s industrial output had the worst start to a year since 2009 and gains in lending and retail sales slowed.

‘Downward Pressure’

Output in Asia’s biggest economy increased 9.9 percent in the first two months and retail sales rose 12.3 percent, government data showed March 9, trailing economists’ estimates. New local-currency loans fell to 620 billion yuan ($99.6 billion) in February, the People’s Bank of China said yesterday, lower than the estimates of 27 out of 28 analysts in a Bloomberg News survey.

“We expect downward pressure on North-East Asian currencies today, as they are more dependent on China outlook than U.S. prospects,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note today. “Moreover, continued plunge of the yen and likely weaker yuan fixing will put them under additional pressure.”

The yield on the 2.75 percent bonds due September 2017 rose one basis point to 2.79 percent, according to prices from Korea Exchange Inc. The Kospi index of shares fell 0.1 percent.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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