Won Completes Worst Week Since August on Outflows; Bonds DeclineYewon Kang
South Korea’s won posted its worst week since August as overseas investors sold the nation’s assets after a series of U.S. economic indicators bolstered the case for a Federal Reserve stimulus cut. Government bonds fell.
Funds Based abroad sold $377 million more local stocks than they bought this week through yesterday and pulled $427 million from Korean debt, data show. U.S. gross domestic product increased at a 2.8 percent annualized rate in the third quarter, beating a Bloomberg survey estimate of 2 percent and higher than the 2.5 percent expansion in the previous three months. The U.S. is showing signs of underlying strength, the Federal Open Market Committee reported on Oct. 30.
“Foreign investors have been selling stocks and assets since the last FOMC meeting, which indicates the concerns on an early Fed stimulus cut,” said Park Hyung Min, a fixed-income analyst at Shinhan Investment Corp. in Seoul.
The won fell 0.4 percent this week, the biggest drop since Aug. 2, and 0.3 percent today to 1,064.9 per dollar in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 32 basis points this week to 6.18 percent. The gauge rose two basis points today.
South Korea’s foreign reserves advanced $6.3 billion in October, the most in two years, to a record $343.2 billion, according to Bank of Korea figures released Nov. 5. Outstanding foreign currency-denominated deposits held by local residents increased to an unprecedented $46.1 billion as of the end of October as companies issued global bonds and exports increased, the Bank of Korea said yesterday.
The won’s fall may be limited because exporters are waiting to sell dollars, said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.
U.S. data released Oct. 31 showed a drop in jobless claims, while a gauge of business activity jumped the most in three decades. Citigroup Inc. and Barclays Plc said the Fed’s Oct. 30 policy statement opens the possibility of a reduction in stimulus as soon as December.
The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 climbed four basis points, or 0.04 percentage point, this week and fell one basis point today to 2.89 percent, according to Korea Exchange Inc. prices.