Won Volatility Climbs to Two-Year High on Geopolitical Tension

  • South Korea shuts business park after North Korean rocket
  • Won is Asia's worst performer amid worsening global outlook

A gauge of expected swings in the won climbed to a two-year high on rising geopolitical tension after North Korea launched a rocket and the global economic outlook worsened.

Three-month implied volatility, a measure used to price options, climbed 81 basis points to 13.09 percent, the highest since June 2013, as of 4 p.m. in Seoul, according to data compiled by Bloomberg. It’s risen 149 basis points since Feb. 5, the biggest weekly increase since December 2014.

North Korea fired a long-range rocket on Sunday, just a month after its fourth nuclear test, drawing condemnation and fresh sanctions from the international community. South Korea responded Wednesday by pulling companies and workers from a jointly run industrial complex, a move that Moody’s Investors Service said heightens geopolitical risks on the peninsula. The rising tension comes as the won trails its Asian peers amid a worsening economic slowdown in China and a rout in worldwide stocks.

“All of these geopolitical tensions, whenever they escalate, are negative for sentiment," said Bernard Aw, a market strategist at IG Asia Pte in Singapore. It’s also being aggravated by the stocks selloff, he said.

Foreign funds have pulled $2.8 billion from Korean shares this year, exchange data show. The won fell 0.7 percent to 1,211.54 a dollar in Seoul, according to data compiled by Bloomberg, and has weakened 4.4 percent in three months, the most in the region.

The yield on the sovereign bonds due December 2025 rose five basis points to 1.81 percent, following a 12-point drop on Thursday to a record low, Korea Exchange prices show.

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