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Korean Won Rises to Four-Month High on China Outlook; Bonds Gain

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Sept. 9 (Bloomberg) -- The won climbed to a four-month high on signs that economic growth in China, South Korea’s biggest export market, is rebounding after a two-quarter slowdown. Government bonds rose.

Chinese overseas shipments increased 7.2 percent from a year earlier in August, official data showed yesterday, exceeding the median forecast for a 5.5 percent gain in a Bloomberg survey of economists. Foreign investors bought $1.48 billion more South Korean equities than they sold last week, the most in almost a year, trimming net outflows in 2013 to $3.75 billion, exchange data show. Global funds added to their holdings of the nation’s equities for a 12th day today.

“China’s better-than-expected trade data helps lift market sentiment,” Son Eun Jeong, a currency analyst at Woori Futures Co. in Seoul, wrote in a research note today.

The won advanced 0.6 percent to 1,086.80 against the greenback in Seoul, according to data compiled by Bloomberg. It touched 1.086.69, the strongest level since May 8. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 16 basis points, or 0.16 percentage point, to 8.12 percent.

China’s economy is picking up after Premier Li Keqiang announced support measures such as tax cuts for small businesses and extra spending on railways, and as confidence returns after the interbank cash squeeze in June. Exports to the U.S. and European Union grew for a second month in August, underscoring an improvement in overseas demand.

Manufacturing Boost

The Bank of Korea may increase interest rates as the global recovery improves the outlook for Asia’s fourth-largest economy, swap markets signal. The five-year contract, the fixed cost needed to receive a floating payment, rose to 3.21 percent from a record low 2.52 percent in May, when the central bank lowered its seven-day repurchase rate by 25 basis points to 2.5 percent.

The won has rallied 2.4 percent in the past month, the most in Asia, on bets Samsung Electronics Co. and Hyundai Motor Co. will be among the biggest beneficiaries as manufacturing activity strengthens abroad. BOK Governor Kim Choong Soo and his board, which will keep the benchmark rate unchanged at 2.5 percent on Sept. 12 based on a Bloomberg survey of economists, may raise it to 2.75 percent by the end of June 2014, DBS Group Holdings Ltd. forecasts.

The yield on South Korea’s 2.75 percent sovereign notes due June 2016 fell six basis points, snapping a five-day advance, to 2.95 percent, Korea Exchange Inc. prices show. South Korea sold 1.87 trillion won ($1.7 billion) of five-year debt at a yield of 3.295 percent, the finance ministry said on its website today.

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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