Won Posts Biggest Monthly Drop Since July on China Slowdown

  • Foreign funds pull $2.7 billion from Korean shares in January
  • South Korea highly exposed to China, says SocGen strategist

The won posted its biggest monthly drop since July as foreign funds pulled money from South Korean stocks on the worsening slowdown in China, the nation’s biggest export market.

The currency was the worst performer in Asia after India’s rupee as overseas investors sold $2.6 billion more Korean shares than they bought amid global market turbulence and the prospect of a weaker yuan. North Korea’s fourth nuclear test on Jan. 6 added to the risk aversion, helping push the won to a five-year low on Jan. 18.

"The higher dollar-yuan fixing at the start of the month had a profound negative effect on global risk sentiment, which caused all emerging-market currencies to weaken," said Jason Daw, head of Asian foreign-exchange strategy at Societe Generale SA in Singapore. South Korea is highly exposed to slower Chinese growth said Daw, predicting a 2.5 percent loss in the won by year-end.

The currency weakened 2 percent in January to close at 1,199.133 a dollar in Seoul, data compiled by Bloomberg show, following a 7.2 percent drop in 2015. It rose 0.8 percent on Friday as the Bank of Japan announced it will adopt negative interest rates. The currency will decline to 1,224 by the end of June, according to the median estimate of analysts surveyed by Bloomberg.

Bonds Benefit

Asia’s fourth-largest economy expanded 2.6 percent in 2015, the least since 2012, the Bank of Korea said on Tuesday. Exports dropped 10.3 percent in January from a year earlier, a 13th month of decline, according to the median estimate in a Bloomberg survey before data due Feb. 1.

The economic downturn has helped drive a net $297 million of foreign funds into Korean sovereign bonds this month. The three-year yield fell nine basis points in January to 1.57 percent,Korea Exchange prices show. The 10-year yield also dropped nine basis points to 1.98 percent, the lowest on record.

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