Forex Trading Chiefs at Citibank, SocGen See Won Extending Drop

The won will drop to levels last seen in 2012 this year as overseas investors pull money from South Korean assets, say foreign-exchange trading heads.

The chief traders at Citibank Korea Inc., Societe Generale SA and Korea Exchange Bank are all forecasting the currency could fall to as low as 1,180 a dollar by year-end, which would be a 2.8 percent decline from Friday’s closing level.

The won has weakened 3.5 percent over the last four weeks, the worst performance in Asia, as a stock-market rout in China, turmoil in Greece and the prospect of an increase in U.S. interest rates deterred risk-taking. Foreign investors have sold $851 million more South Korean shares than they bought this month, exchange data show.

“Worries over the health of China’s economy remain,” said Ryoo Hyun-Jung, chief currency trader at Citibank Korea in Seoul. “Foreigners bought the dollar to avoid currency risks and to repatriate their money.”

South Korea’s economy has also been harmed by the deadly Middle East Respiratory Syndrome, which has sapped domestic consumption. The Bank of Korea lowered its 2015 growth forecast to 2.8 percent earlier this month as it held the benchmark interest rate at a record low 1.5 percent. The economy expanded 3.3 percent last year.

The won has dropped 4.9 percent this year as South Korean exports fell in each of the first six months. It closed up 0.2 percent at 1,147.49 a dollar on Friday, data compiled by Bloomberg show.

Recovery Elusive

“Weakness in the won is likely to continue longer than was expected earlier this year,” said Moon Young Sun, head of trading for Korea Exchange Bank in Seoul. “We thought the won would recover in the second half, but more dollar-buying will come in the fourth quarter.”

Not everyone is expecting the won to keep weakening. ABN Amro Bank NV, the most accurate forecaster of emerging-market Asian currencies over the last four quarters as ranked by Bloomberg, estimates it will gain 1.5 percent to 1,130 a dollar by year-end. The median of estimates made over the last month in a Bloomberg survey is for an end-2015 level of 1,140.

The Finance Ministry last month announced measures to encourage residents to invest more overseas, saying the record current-account surplus is deepening imbalances in the foreign-exchange market. The central bank projects the excess in the broadest measure of trade will reach an all-time high of $98 billion this year.

“The measures will weaken the won in the mid to long term,” said Kim Nam-Kyu, director for trading at Societe Generale on July 15. “Their immediate impact on the currency will be limited.”

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