Won Drops to Five-Year Low Amid Asia Stocks Rout, Korea Tensions

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The won had its weakest close in five-years and South Korean stocks retreated for a sixth day as investors fled Asia and a military standoff with North Korea continued.

The Kospi index of shares fell to the lowest since July 2013 amid a rout that’s erased more than $5 trillion from the value of global stocks since China unexpectedly devalued the yuan. South Korean President Park Geun Hye on Monday demanded the North apologize for placing land mines that maimed two South Korean soldiers on Aug. 4., even as crisis talks dragged on.

The won declined 0.3 percent to 1,198.93 a dollar in Seoul, it lowest closing level since July 2010, data compiled by Bloomberg show. The Kospi dropped 2.5 percent to 1,829.81, Korea Exchange prices show.

“Panic selling in Asia exacerbated as we nervously await news from the talks between the two Koreas,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “While foreign investors sold local stocks heavily, the drop in the won was relatively small as South Korean authorities are suspected to be keeping the currency from falling below 1,200.”

The central bank’s currency official Park Jun Seo declined to comment on speculation that authorities intervened in market to support the won’s value.

President Park asked government officials to closely monitor markets, while the Finance Ministry said it would act “pre-emptively” after the nation’s largest exchange-traded fund suffered the biggest weekly withdrawal since its inception 15 years ago. The Bank of Korea will prepare necessary measures to stabilize markets while closely monitoring North Korean risks, the central bank said in a statement after an emergency meeting.

Capital Flight

Global funds pulled $903 million from South Korean equities last week, fueling concern that the revival of tensions on the Korean peninsula will hasten outflows as investors withdraw from emerging markets. The iShares MSCI South Korea Capped ETF, the largest exchange-traded fund tracking the country’s stocks, had the biggest weekly withdrawal since its inception in 2000, data compiled by Bloomberg show.

“Both domestic and external factors are very uncertain and now’s time to be cautious and manage risk,” said Heo Pil Seok, the chief executive officer at Midas International Asset Management in Seoul. “Geopolitical issues are hard to predict and the pace of outflows from emerging markets in quickening.”

Government bonds rose, with the yield on 10-year notes falling five basis points to 2.21 percent, Korea Exchange prices show. The three-year yield dropped one basis point to 1.70 percent.

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