South Korea Won Erases Gain as China Concern Spurs Risk Aversion

  • Foreigners withdraw $824 million from Korean stocks in January
  • China intervention making traders nervous: Kookmin Bank

The won erased gains to retreat for a second day as financial market volatility in China, South Korea’s largest export market, curbed demand for riskier emerging-market assets.

Global funds sold more Korean shares than they bought for a fourth day, pulling a net $824 million in January. The offshore yuan temporarily erased its discount to the onshore rate, and the cost of borrowing the Chinese currency in Hong Kong surged to a record as the central bank stepped up intervention to prevent speculation and arbitrage. A senior Chinese government official said Monday that betting against the currency will fail and calls for a large depreciation are “ridiculous” as policy makers are determined to ensure stability.

The won declined 0.1 percent to close at 1,210.30 a dollar in Seoul, according to data compiled by Bloomberg. It strengthened as much as 0.5 percent before dropping to 1,212.62, the weakest since July 2010. The Kospi index of shares fell 0.2 percent to close at the lowest level since Sept. 8.

"Offshore investors repatriating proceeds from their sales of Korean stocks pushed the won down, and swings in Chinese markets reignited risk aversion," said Dong-Wook Kim, a currency trader at Kookmin Bank in Seoul. "China’s intervention to drain yuan liquidity is making traders nervous and prompting them to seek safety in the greenback."

South Korean lawmakers approved President Park Geun Hye’s finance minister nominee Yoo Il Ho late Monday. Yoo said in a parliamentary hearing that Asia’s fourth-largest economy could meet the government’s forecast of 3.1 percent growth in 2016 if policy efforts are continued.

Sovereign bonds declined, with the 10-year yield rising two basis points from a record low to 2.05 percent, Korea Exchange prices show. The three-year yield was little changed at 1.64 percent.

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