Won Posts Worst Quarterly Loss Since 2011 on Equities Selloff

  • China slowdown, Tensions with North Korea pressure currency
  • Bonds advance with three- and 10-year yield falling to record

The won posted its biggest quarterly loss in four years as global investors fled South Korean stocks amid a worsening economic slowdown in China and a military standoff with North Korea.

Overseas investors sold a net $7.1 billion of local shares in the three months to Sept. 30 as the outlook for exports deteriorated and tensions across the heavily fortified border with North Korea in August hurt investor confidence. The won sank to a four-year low this month as data from China, the top destination for South Korean goods, pointed to a deeper slump following the yuan’s devaluation, and as the U.S. prepares to increase borrowing costs for the first time in almost a decade.

The won fell 5.9 percent from June 30, the biggest drop since 2011, to close at 1,185.39 a dollar in Seoul, data compiled by Bloomberg show. The currency retreated for the fifth quarter, its longest run of declines since the three months ended March 2009. It rose 0.8 percent from Sept. 25. South Korean markets were shut Monday and Tuesday for holidays.

"The main story in the currency market this quarter was foreigners selling stocks in search of safer assets amid a dimmer Korean economic outlook along with geopolitical events and external risks," said Kim Moon Il, an analyst at Eugene Investment & Securities Co. in Seoul. "The won is set to weaken further in the fourth quarter as concerns about outflows from equities linger."

Global funds were net sellers of shares in the benchmark Kospi index for 29 straight days through Sept. 15, the longest selloff since July 2008. Overseas investors bought a net $4.5 billion of local bonds this quarter.

The Bank of Korea cut its 2015 growth forecast in July to 2.8 percent from 3.1 percent, and will review its outlook at an Oct. 15 monetary policy meeting. South Korea’s exports decreased 6.4 percent in the first 20 days of September from a year earlier, Customs Service data showed Sept. 21, and are set to shrink for the ninth month. Overseas sales probably fell 11.8 percent this month, according to the median forecast of 14 analysts surveyed by Bloomberg before official data due Thursday.

Government bonds rose on Wednesday, with the three-year yield falling five basis points from Sept. 25 to an unprecedented 1.57 percent, Korea Exchange prices show. It has dropped 22 basis points this quarter. The 10-year yield declined seven basis points from Friday to 2.06 percent, the lowest on record, and has decreased 39 basis points from June 30.

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