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Won Falls to 2-Month Low as Global Funds Sell Shares; Bonds Gain

The won fell to a two-month low on speculation global investors selling South Korean equities will repatriate proceeds. Government bonds rose.

Foreign funds sold local shares for a third day as Finance Minister Hyun Oh Seok said today the Federal Reserve’s possible exit from monetary stimulus adds to uncertainties facing South Korea’s economy. The dollar rose versus most Asian currencies as Standard & Poor’s increased the U.S.’s AA+ credit-rating outlook to stable from negative yesterday.

“Foreign investors have sold South Korean shares and they may repatriate their proceeds,” said Jeon Seung Ji, an analyst at Samsung Futures Inc. in Seoul. “The dollar rose after S&P boosted the U.S.’s rating.”

The won fell 0.6 percent to 1,134 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,137.75, the weakest level since April 10. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 62 basis points, or 0.62 percentage point, to 10.73 percent.

Foreign funds sold $1 billion more South Korean shares than they bought this month through June 10, exchange data show. South Korea will continue policy efforts to support growth in the second half of the year as the country’s economic outlook remains uncertain amid stimulus measures undertaken by major economies, including Japan, Hyun said before a meeting with economists in Seoul today.

Bearish Sentiment

The government unveiled a 17.3 trillion won ($15.3 billion) supplementary budget to support exporters pressured by a weaker Japanese currency and spur an economy that expanded last year at the slowest pace since 2009. South Korea’s low-growth phase may continue with declines in consumption and investment, the Finance Ministry said in a statement today.

South Korea’s exports unexpectedly gained 3.2 percent in May from a year earlier and the trade surplus climbed to the highest in more than 2 1/2 years, the trade ministry said June 1. While shipments were better than what the government had estimated, the momentum of exports is “not strong,” Choi Sang Mok, the ministry’s director general, told reporters today.

Sentiment on Asian currencies is turning bearish and the expectation that the won will outperform has diminished, Jonathan Cavenagh, a senior currency strategist at Westpac Banking Corp. in Singapore, wrote in a research note today. The Korean bond market also remains under pressure but the risk of outflows is less than other Asian countries, he wrote.

The yield on the 2.75 percent notes due March 2018 fell two basis points to 2.95 percent, prices from Korea Exchange Inc. show.

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