South Korea’s stocks jumped the most this year and the won climbed to a six-month high after the Federal Reserve announced a third round of asset purchases and Standard & Poor’s upgraded the nation’s debt rating. Bonds gained, rebounding from an earlier decline.
The Kospi index rallied 2.9 percent to 2,007.58 in Seoul as exchange data showed overseas investors bought $562 million more Korean shares than they sold this week through yesterday. The won rose 1 percent to 1,117.30 per dollar, the biggest jump since May 28 and the strongest level since March 12, according to data compiled by Bloomberg.
The Fed announced yesterday open-ended purchases of $40 billion of mortgage debt a month, a third round of quantitative easing that would boost the supply of dollars. S&P raised South Korea’s long-term foreign-currency rating today by one step to A+, the fifth-highest level, following upgrades by Moody’s Investors Service and Fitch Ratings in the past three weeks.
“Investors were already cheering the stronger-than-expected stimulus plan from the U.S. and this sovereign rating-upgrade news provided an extra catalyst in the afternoon,” said Kim Jae Dong, head of equity investments in Seoul at SEI Asset Korea Co., which manages about $5.3 billion in assets. “Expectations are also growing that key global economies may hit the bottom by the end of this year and then rebound.”
South Korean policy makers face pressure to add stimulus as Europe’s debt crisis curbs exports, while weighing signs of resilience such as unemployment at this year’s low. The Finance Ministry announced 5.9 trillion won ($5.3 billion) of spending and tax relief this week while resisting calls for a budget increase.
“The upgrade reflects our less negative assessment of the geopolitical risks on the Korean peninsula,” S&P said in a statement today. Fitch boosted the nation’s rating to AA-, the fourth-highest grade, on Sept. 6, while Moody’s raised its rating to Aa3 on Aug. 27. Both credit assessors cited South Korea’s relatively strong position to cope with global financial turbulence.
The yield on the government’s 3.25 percent bonds due June 2015 declined two basis points to 2.86 percent, after earlier climbing as much as four basis points, or 0.04 percentage point, to 2.92 percent, Korea Exchange Inc. prices show. Three-year debt futures advanced 0.04 to 105.97 and the one-year interest-rate swap climbed one basis point to 2.91 percent.
“The rating upgrade heightened expectations that inflows from overseas will continue to South Korea’s bond market, reversing the securities’ declines this morning,” said Moon Hong Cheol, a Seoul-based fixed income analyst at Dongbu Securities Co.
One-month implied volatility in the won, a measure of exchange-rate swings used to price options, slid 24 basis points to 5.98 percent, the lowest level since 2008.
The 57-member Kospi Finance Index jumped 4.5 percent, the most in almost a year. Hana Financial Group Inc. rallied 7.1 percent to 36,450 won, the steepest jump in a year, on expectations the higher rating will help lower Korean financial firms’ funding costs. KB Financial Group Inc. added 4.3 percent to 40,500 won, while Shinhan Financial Group Co. gained 4 percent to 37,450 won.
Woori Investment & Securities Co. surged 10 percent to 12,700 won, its biggest gain since Dec. 1, leading brokerages higher, on speculation the Fed’s stimulus plan will stoke investors’ appetite for riskier assets including equities.
Daewoo Securities Co. jumped 15 percent to 13,450 won, while Samsung Securities Co. added 8.2 percent to 53,900 won.