Korea’s Won Rises Most in Two Months on U.S. Data; Bonds Advance

South Korea’s won rose the most in two months as Asian equities rebounded after gains in U.S. retail sales and jobs data bolstered the outlook for the world’s largest economy. Government bonds advanced.

The currency pared its weekly loss after South Korea’s benchmark Kospi Index of stocks snapped a three-day decline and the MSCI Asia Pacific Index gained. Sales at U.S. retailers rose more than forecast in May, and firings waned last week, official reports in Washington showed yesterday. Korean stocks offer better value than Japanese shares, Credit Suisse Group AG wrote in a note today.

“Better-than-expected U.S. retail sales added confidence in the global economic recovery,” said Jeon Seung Ji, an analyst at Samsung Futures Inc. in Seoul. “There are expectations that the recent pullout from emerging-market equities will abate.”

The won rose 0.7 percent to 1,126.25 per dollar in Seoul, the biggest gain since April 15, according to data compiled by Bloomberg. The currency weakened 0.8 percent this week. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 51 basis points, or 0.51 percentage point, to 10.48 percent. It rose 96 basis points this week, the data show.

Return on equity is 8.6 percent in South Korea and 6.1 percent in Japan, based on price-to-book and a yen that’s defying expectations for depreciation, Credit Suisse strategists including Sakthi Siva, a Singapore-based analyst, said in a note.

‘Contain Volatility’

The won touched a two-month low of 1,136.55 per dollar yesterday amid speculation that the Federal Reserve will taper stimulus that has boosted supply of the greenback amid signs that the world’s largest economy is recovering. Overseas investors sold more Korean shares than they bought for a sixth day, adding to $2.77 billion of net sales this month through yesterday, exchange data show.

South Korea must watch global financial markets and be ready to act with flexibility to contain excessive volatility in foreign-exchange markets and capital flows, central bank Governor Kim Choong Soo said in a speech today. The Bank of Korea yesterday left its benchmark interest rate unchanged at 2.50 percent after unexpectedly cutting borrowing costs by a quarter of a percentage point in May.

The yield on the 2.75 percent sovereign bonds due March 2018 fell six basis points to 2.98 percent, the biggest drop since May 2, prices from Korea Exchange Inc. show. It rose six basis points this week.

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