Korea Won, Bonds Post Best Week in a Month on China Optimism

South Korea’s won and government bonds posted the best weekly performance in a month after China export data eased concern about a slowdown in the nation’s largest overseas market.

South Korea’s economy is growing “moderately,” led mainly by exports, the Bank of Korea said yesterday after keeping the benchmark interest rate at 2.5 percent. China reported increases in exports, imports, manufacturing and services over the past two weeks. Federal Reserve officials indicated a greater willingness this week to begin tapering the bond-buying program that has spurred the flow of funds to emerging markets.

“China’s better-than-expected trade data turned sentiment and supported many Asian currencies, including the won and the Aussie dollar,” said Jahng Won, a currency trader at Shinhan Bank in Seoul. “South Korea’s economic growth seems stable, external factors such as the Fed’s tapering schedule is what investors are more concerned about.”

The won advanced 1 percent this week to 1,112.3 per dollar in Seoul, the biggest gain since the five days through July 12, according to data compiled by Bloomberg. The currency rose 0.1 percent today and touched 1,107.55, the strongest level since May 14.

The yield on the 2.75 percent sovereign bonds due June 2016 dropped six basis points to 2.91 percent, the biggest weekly decline since the period ended July 12, according to Korea Exchange Inc. prices. The rate fell two basis points, or 0.02 percentage point, today.

China Plans

Korea Investment Corp., the country’s sovereign wealth fund, plans to spend as much as $10 billion to triple its allocation to alternative assets and is also looking to expand its investments in China, Lee Dong Ik, chief investment officer at KIC, said in an interview on Aug. 7. The fund was granted a license from Chinese authorities in 2011 to invest in the country’s stock market under the Qualified Foreign Institutional Investor program.

China’s exports rose 5.1 percent from a year earlier in July after contracting 3.1 percent in June, official data showed yesterday. That exceeded the median estimate of 2 percent growth in a Bloomberg survey. Imports advanced 10.9 percent, higher than the forecast of a 1 percent gain. The nation’s non-manufacturing Purchasing Managers’ Index rose to 54.1 in July from 53.9 in June while manufacturing PMI climbed to 50.3.

Chicago Fed President Charles Evans said three days ago he would not rule out a decision to start cutting bond purchases at the Sept. 17-18 gathering of the Federal Open Market Committee. His comments were similar to those from Cleveland Fed President Sandra Pianalto, who said she would be prepared to scale back stimulus if the labor market continues to improve.

One-month implied volatility in the Korean won, a measure of expected moves in the exchange rate used to price options, fell 121 basis points this week and 10 basis points today to a three-month low of 6.84 percent.

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