Won Weakens as South Korea Surplus Shrinks, Stock Outflows Mount

  • Bonds rise as risk-off sentiment spurs demand for safety
  • Global funds pulled $3.7 billion from stocks in last 20 days

South Korea’s won retreated from a three-week high as the current-account surplus narrowed and a selloff in global equities deterred risk-taking.

The excess in the broadest measure of trade was $10.1 billion in July, down from June’s record, the Bank of Korea reported Wednesday. The figures come after data Tuesday showed exports tumbled last month by the most since 2009. The Kospi index of shares stayed near a one-week low as overseas investors cut their holdings for the 20th day in a row, the longest run of net sales in seven years. They’ve pulled more than $3.7 billion out of the securities that time.

The won fell 0.8 percent to close at 1,180.78 a dollar in Seoul, extending this year’s loss to 7.6 percent, data compiled by Bloomberg show. The currency rose to 1,170.01 on Tuesday, the strongest level since Aug. 11. The Kospi declined as much as 1.6 percent, before closing little changed.

"The narrowing of the current-account surplus" adds pressure on the won, said Park Dae Bong, a currency trader at Nonghyup Bank in Seoul. "Risk-off sentiment prevails and traders’ attention is all on stocks."

Minutes of the Bank of Korea’s Aug. 13 meeting showed a policy official warned China’s economic slowdown and the devaluation of the yuan could pose significant headwinds to South Korea’s economy. Another board member asked for efforts to curb the won’s swings, adding that the nation is unlikely to see rapid capital outflows.

One-month implied volatility in the local currency, a measure of expected exchange-rate swings used in pricing options, in the past two weeks exceeded 12 percent for the first time in two years.

Government bonds rose, with the 10-year yield falling six basis points to a one-week low of 2.26 percent, Korea Exchange prices show. The three-year yield declined three basis points to 1.70 percent.

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