Won Declines to Five-Year Low With Stocks as Bonds Extend Rally

  • Downside risks for exports may increase, Trade Minister says
  • Sovereign bond yields sink to record lows on flight to safety

South Korea’s won fell to the lowest level in more than five years and stocks joined a rout in Asian equities as an overnight drop in oil prices deterred risk-taking.

Downside risks for South Korea’s exports may increase as China’s economy and oil prices are unlikely to recover in the short term, Trade Minister Joo Hyung Hwan said in a statement Wednesday. Crude retreated below $30 a barrel in New York and is down about 20 percent this year as increasing U.S. stockpiles exacerbate a global glut. Sovereign bonds rallied, pushing the yields to fresh lows, as investors sought the relative safety of government debt. North Korea said it will launch a long-range rocket between Feb. 8 and Feb. 25 to put a satellite in orbit, following its fourth nuclear test on Jan. 6.

The won dropped 1 percent, the most among 24 emerging-market currencies tracked by Bloomberg, to close at 1,219.38 a dollar in Seoul. It reached 1,221.09, the lowest since July 2010 and is Asia’s worst performer this year with a 3.8 percent loss. The Kospi index fell 0.8 percent as foreigners sold more local shares than they bought, taking withdrawals in 2016 to $2.4 billion.

"There’s concern about further outflows as oil resuming its slide hurts investor sentiment," said Yuna Park, a Seoul-based foreign-exchange and fixed-income analyst at Dongbu Securities Co., who expects the won will maintain its weakening trend this quarter. "News from North Korea also deters risk-taking, though any impact will be short lived."

Morgan Stanley recommends selling the won against the dollar as it sees the Bank of Japan’s monetary stimulus last week increasing the risk of counter moves by the Bank of Korea, according to a Feb. 2 report. The bank expects a BOK rate cut later this year as growth in Asia’s fourth-largest economy will trail the central bank’s 3 percent projection for 2016.

The yield on bonds maturing December 2018 dropped two basis points to 1.50 percent in Seoul, Korea Exchange prices show, the lowest on record for a benchmark three-year security and matching the BOK’s policy rate. The 10-year yield declined six basis points to an unprecedented 1.87 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE