South Korea is making it easier for investors to buy overseas assets, which Goldman Sachs Group Inc. and Barclays Plc say will support a weaker currency and aid export competitiveness.
The finance ministry this week released measures including tax benefits for funds buying global equities and looser regulation on insurers’ currency hedging and foreign debt purchases. South Korea’s exports, which generate about half of the nation’s gross domestic product, fell for a sixth month in June as concern mounts that the won’s strength is hurting price competitiveness.
South Korea’s currency has strengthened 9 percent against the yen and 11 percent versus the euro in the past 12 months, despite the central bank lowering borrowing costs four times during the period, to a record low. The won has weakened 0.9 percent against the dollar in the past week amid rising uncertainty about Greece.
“The rate cuts have had little impact on the currency, and the new measures seem aimed at promoting a weaker won without drawing any backlash from other countries,” said Seo Jeong Hun, a researcher in Korea Exchange Bank’s currency and derivatives sales division. “It is also a way to respond to the weak yen.”
“The government’s measures will help limit the won’s appreciation and clearly signals a preference for a weaker currency,” Wai Ho Leong, a Singapore-based economist at Barclays Plc. Leong said there is a possibility the won could weaken beyond its forecast of 1,150 against the dollar this year.
Goldman Sachs said the policy will have a meaningful effect on South Korea’s economy through exchange rates and BNP Paribas said it had revised its year-end forecast for the won to 1,180. It traded at 1,118.80 at 9:33 a.m. in Seoul.
The policy comes as the government forecasts the current-account surplus to reach an all-time high of $94 billion this year, which has been putting upward pressure on the won.
The measures could increase capital outflows from South Korea by as much as $20 billion annually for the next one to three years, said Lim Ji Won, an economist for JPMorgan Chase & Co. in Seoul. Lim said the short-term impact on the currency may be limited.
Shipments from Asia’s fourth-biggest economy fell 1.8 percent in June from a year earlier, the trade ministry said Wednesday.
The government plans to submit legislative revisions to parliament for the outbound investment measures in the second half of 2015.