August Lull Brings Annual Storm to Korean Won: Chart of the DayKyoungwha Kim and Ye Xie
August is a good month to bet against South Korea’s won, if history is any guide, as labor strikes and dividend payments cast outsized waves during a seasonal lull in exchange trading, according to BNP Paribas SA.
The CHART OF THE DAY, which tracks the won’s monthly performance against the dollar from 2005, shows the Korean currency weakened every August except in 2013. Its 2.1 percent decline since June 30 this year is the worst in Asia, after a 3.8 percent gain in the first six months, data compiled by Bloomberg show. April was almost the opposite of August during the period, with the won gaining every year except in 2008.
“August is a less-liquid period in financial markets, and thus minor influences like mid-year dividends and summer strikes may have an exaggerated impact,” Mirza Baig, head of Asia currency and rates strategy at BNP in Singapore, said in an Aug. 1 e-mail interview. This year, “the negative seasonality will reinforce existing negative influences on the won, such as continued political pressure on the Bank of Korea to ease monetary policy and rising U.S. swap rates,” he said.
Labor unions at Hyundai Motor Co. and its 14 affiliates vowed to go on strike unless the companies meet their wage demands. Samsung Electronics Co., SK Telecom Co. and Hana Financial Group Inc. are among companies which announced interim dividend payments last month. Samsung Electronics and Hyundai Motor are the nation’s biggest companies by value.
BNP Paribas on July 31 recommended selling one-month forwards on the won with a target level of 1,045 per dollar and stop at 1,020. The spot rate rose 0.3 percent to 1,033.55 yesterday. The currency will climb to 1,018 by the year-end, according to the median estimate of analysts in a Bloomberg survey.
The BOK’s monetary policy committee convenes on Aug. 14 to decide whether to change the key policy rate after it lowered 2014’s growth outlook last month to 3.8 percent from 4 percent.