Won Leads Decline in Emerging Currencies as Stocks Fall on Paris

  • South Korea says market impact of attacks will be temporary
  • Overseas funds were net sellers of local shares for eighth day

The won led declines in developing-nation currencies on concern capital outflows from South Korean stocks will accelerate as investors seek safer assets after terror attacks in Paris that killed 132 people.

The won weakened 0.9 percent, the most among 24 emerging-market exchange rates tracked by Bloomberg, to close at 1,173.89 a dollar in Seoul. It reached 1,174.72, the lowest since Oct. 5, and has pared this quarter’s advance to 1 percent. Government bonds rose as investors sought the relative safety of sovereign debt.

The Kospi index of shares dropped to the lowest in almost seven weeks as overseas investors net sold Korean shares for an eighth day, taking this month’s withdrawals to $628 million. The Finance Ministry said Monday it will act to minimize the impact on its economy from Friday night’s attacks in France. The blasts and shootings will fuel worries about decreasing trade in Europe and adversely affect exports from China, South Korea’s biggest overseas market, KB Investment & Securities Co. said in a report.

"The initial impact of the Paris terror attacks is quite significant and demand for safer assets may increase temporarily," said Park Dae Bong, a senior currency trader at Nonghyup Bank in Seoul, who predicts the exchange rate will decline to as low as 1,185 this week. "Concerns about outflows from stocks will push the won lower."

South Korea will monitor financial markets and conduct stabilizing measures if needed, the Finance Ministry said in a statement after a meeting in Seoul. The impact from the terror attacks is expected to be short-lived, it said.

China’s economic slowdown, the Federal Reserve’s potential interest-rate increase, and local household debt are among the five major risks for South Korea’s financial system, the Bank of Korea said in its bi-annual survey of systemic risk released Sunday. Low inflation and growth, which were picked as key risks in a previous survey released in June, weren’t regarded as such this time, according to the central bank.

The yield on government bonds maturing in June 2018 fell three basis points to 1.75 percent, Korea Exchange prices show, while that on benchmark 10-year notes declined five basis points to 2.28 percent. The nation’s local-currency debt has returned 4.4 percent this year, the fourth-best performance among local-currency emerging-market bonds in Asia, according to indexes compiled by Bloomberg.

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