Won Gains as Foreigners Turn Net Buyers of Stocks; Bonds Steady

Nov. 15 (Bloomberg) -- South Korea’s won rose for a second day as overseas investors pumped money into local stocks for the first time in two weeks. Government bonds were steady.

Global funds bought $44 million more local shares than they sold today, following nine days of withdrawals, exchange data show. Janet Yellen, at a Senate hearing for her nomination to succeed Ben S. Bernanke as Fed chairman, signaled she will maintain record monetary stimulus until the economy strengthens. The U.S. central bank will cut its asset purchases to $70 billion a month in March from the current $85 billion, according to a Nov. 8 Bloomberg survey of economists.

The won advanced 0.4 percent to 1,063.53 per dollar in Seoul, according to data compiled by Bloomberg. The currency gained 0.1 percent this week and 1 percent this quarter. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 62 basis points today and two basis points since Nov. 8 to 6.17 percent

“The sentiment turned around as foreign investors started to buy local stocks again,” said Park Jung Hyun, a currency trader at Hana Bank in Seoul. “Although Yellen’s dovish comments are priced in, we expect the risk-on sentiment to come back.”

South Korea’s 2012 current-account surplus was revised to $50.8 billion from $48.1 billion, reflecting a new International Monetary Fund rule applied in calculating the data, Bank of Korea said in a statement today. The nation’s trade excess based on existing rules was estimated at a record $63 billion for this year, according to the central bank’s projections in October.

Interest Rates

The Bank of Korea will begin to raise interest rates in the second half of 2014 as the nation is better placed than other developing nations to benefit from global macro developments, Goldman Sachs Group Inc. analysts including Themistoklis Fiotakis wrote in a research note yesterday. There is less scope for won appreciation and more room for the Kospi index of stocks to rise, they added.

Yellen’s comments to Congress seem to confirm her existing stance on tapering, Bank of Korea Governor Kim Choong Soo said today. The monetary authority held its benchmark rate at 2.5 percent yesterday. The possible Fed tapering is unlikely to have a big impact on local banks’ foreign-currency liquidity, the Financial Supervisory Service said in a statement today.

The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 was unchanged today and rose four basis points, or 0.04 percentage point, this week to 2.93 percent, according to Korea Exchange Inc. prices.

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