Korean Won Slips on China Manufacturing Slowdown; Bonds Advance

The won fell for a second day after a report indicated manufacturing growth is slowing in China, South Korea’s biggest export market. Government bonds rose.

The preliminary reading of 50.5 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with 51.6 in March. The figure was also below the median 51.5 estimate in a Bloomberg News survey. Readings above 50 signal expansion. A rebound in the yen, which has dropped 8.2 percent versus the won this year, lessened the risk South Korea will seek a weaker currency to help exporters compete with Japanese rivals in global markets.

“China’s April PMI data, which missed forecasts, pressured the won down,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. A decline in the won may be limited as a pickup in the yen may “halt the trend of foreign investors selling Korean shares in preference for safer assets.”

The won fell 0.2 percent to 1,120.93 per dollar in Seoul, reversing earlier gains of as much as 0.2 percent, according to data compiled by Bloomberg. Overseas investors cut holdings of South Korean shares today, adding to net sales of $2.3 billion this month through yesterday, exchange data show. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 20 basis points, or 0.20 percentage point, to 8.29 percent.

Yen Rebound

The yen strengthened after failing to breach 100 per dollar for the first time since 2009. It climbed 0.6 percent to 98.69 after touching 99.90 yesterday. South Korean Finance Minister Hyun Oh Seok said this week there’s a “lot of impact from the falling yen” and urged advanced nations to prepare for an orderly exit from monetary easing and low interest-rate programs. The won fell 5 percent versus the greenback this year and gained 9 percent against the yen.

Bonds gained, reversing an earlier drop. The yield on South Korea’s 2.75 percent government notes due March 2018 dropped one basis point to 2.67 percent, according to prices from Korea Exchange Inc.

Bank of Korea Governor Kim Choong Soo said yesterday in parliament that he’s cautious about further cuts in borrowing costs after two reductions last year. The Bank of Korea left its benchmark rate at 2.75 percent for a sixth month on April 11.

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