Won Leads Declines in Asia on Slowing Korea Growth, Outflows

  • Gross domestic product expanded least in three years in 2015
  • Economic data point to weaker won over long term: Busan Bank

The won led declines in Asian currencies after data showed South Korea’s economy slowed and global investors pulled money from the region’s stocks as a drop in oil prices deterred risk-taking.

The currency weakened against 22 of 23 developing-nation counterparts after a report showed Asia’s fourth-largest economy expanded the least in three years in 2015 and as China’s worsening growth outlook exacerbated outflows. The Kospi index fell the most in a week as foreigners sold more local shares than they bought for a ninth day, taking withdrawals in January to $2.5 billion. Bonds rose as investors sought safety in government debt.

"Global risk aversion was reignited following a drop in oil prices," said Kim Dae Hun, a currency trader at Busan Bank Co. in Seoul. "While South Korea’s growth data won’t have a significant impact on the exchange rate immediately, sluggish economic fundamentals support a weaker won in the long term."

The won weakened 0.8 percent, the biggest drop since Jan. 11, to close at 1,203.99 a dollar in Seoul. The currency’s 2.6 percent drop makes it Asia’s worst performer this year. It’s forecast to drop a further 1.7 percent to 1,225 by the end of June, according to the median estimate of analysts surveyed by Bloomberg. The Kospi fell 1.2 percent on Tuesday. Oil in New York retreated below $30 a barrel, bringing its decline this year to 20 percent.

Gross domestic product increased 0.6 percent in the fourth quarter from the previous three months, when it jumped by 1.3 percent, the central bank said Tuesday. Asia’s fourth-largest economy expanded 2.6 percent in 2015.

The Bank of Korea cut its 2016 growth forecast to 3 percent from 3.2 percent on Jan. 14 as instability from China reverberated across global financial markets. The BOK lowered its inflation projection to 1.4 percent from 1.7 percent in October.

"Dollar-buying by offshore investors related to stock outflows are likely to continue for a while,” said Dong-Wook Kim, a Seoul-based currency trader at Kookmin Bank.

The yield on 10-year sovereign notes declined three basis points to 1.99 percent, matching the record low reached on Jan. 21, Korea Exchange prices show. The yield on securities due 2018 fell one basis point to 1.61 percent.

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