Won Drops to Five-Year Low as China Concern Fuels Stock Outflows

  • Global funds pull $901 million from local shares in January
  • South Korean bonds advance as investors seek safety in debt

The won fell to the weakest level since July 2010 as global funds sold South Korean stocks amid signs of faltering growth in China, the nation’s biggest export market.

South Korea should closely monitor rising volatility in financial markets and scrutinize flows of foreign capital, Financial Services Commission Chairman Yim Jong Yong said Sunday. Overseas funds have pulled $901 million from local stocks this month following their first annual withdrawal in four years in 2015. China posted a record 46th monthly decline in producer prices and consumer inflation remained at about half the government’s 2015 target, according to data released Saturday.

The won weakened 1 percent, the biggest decline in Asia, to close at 1,209.73 a dollar in Seoul, according to data compiled by Bloomberg. The currency fell as low as 1,211.20 earlier. The Kospi index of shares declined 1.2 percent, closing at the lowest level since September.

“Risks associated with Chinese economy will continue to put downward pressure on the won along with net-selling in local stocks," said Jude Noh, chief foreign-exchange trader at Suhyup Bank in Seoul. He said he expects the currency to trade between 1,188 and 1,212 a dollar this week.

Rate Meeting

A gauge of the dollar’s strength against 10 major peers was steady after rising on Friday as data showed U.S. employers hired 292,000 workers in December, exceeding the highest estimate in a Bloomberg survey.

The Bank of Korea will hold its benchmark interest rate at a record low of 1.5 percent on Thursday, according to 15 of 16 economists surveyed by Bloomberg. One predicted a 25 basis point cut. The central bank is due to review its October forecast for 3.2 percent growth in 2016.

Government bonds advanced, with the three-year yield dropping three basis points to 1.64 percent, the lowest since Oct. 1, Korea Exchange prices show. The 10-year yield also fell three basis points to 2.02 percent, matching the lowest on record reached on Jan. 7.

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