Global Funds Turn Net Buyers of Won Forwards, Bank of Korea Says

Global funds were net buyers of South Korea’s won in the non-deliverable forwards market over the last three months as speculation eased that the Federal Reserve was on the brink of reining in monetary stimulus.

Overseas investors bought $3.9 billion more won than they sold using the contracts in the last three months, after net sales of $9.7 billion in the second quarter and $11.1 billion in the first, Bank of Korea said in a statement today. The data was based on trades between offshore traders and banks based in South Korea. The Fed will hold off from trimming its $85 billion of monthly debt purchases until March, according to the median prediction in an Oct. 17-18 survey by Bloomberg News. Cuts were forecast for December in a similar survey a month earlier.

“Offshore investors have been neglecting the won, as opposed to won-based assets, because of the risk of intervention,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “This data may signal that foreign investors have turned long on the won against the dollar.”

The won touched a nine-month high of 1,059.75 per dollar in Seoul today, before closing 0.1 percent weaker on the day at 1,062.31, according to data compiled by Bloomberg. The one-month NDF fell 0.2 percent to 1,064.25, after strengthening in all but one of the last eight weeks.

Global funds have pumped more than $11.7 billion into South Korea’s equities since Aug. 22, the last day of net sales, stock exchange data show.

Intervention Risk

South Korea is monitoring fund inflows and currency moves to identify speculative activities and will prevent “herd behavior,” Finance Ministry Director Kim Seong Wook said Oct. 18. A stronger currency erodes the competitiveness of the nation’s exports, which account for around half of its gross domestic product.

Domestic companies sold $10 billion more won than they bought in the forwards market in the third quarter as exporters delayed repatriating their overseas income on expectations that the won would strengthen, according to the central bank’s statement. That compares with net purchases of $7.7 billion in the second quarter and $7 billion in the first.

“This indicates that the won may rally further as local companies may sell more dollars that they’ve been holding,” said Jeon at Samsung Futures.

Morgan Stanley forecast the won will strengthen to 1,000 versus the dollar on improved “quality” of inflows into South Korea’s bond market in recent years and on the potential for political pushback against the intervention by the Bank of Korea, according to an Oct. 17 research note by Geoffrey Kendrick, the Hong Kong-based head of Asian currency and rates strategy. The report didn’t give a timeframe for the move.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

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

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