Won Posts Biggest Weekly Gain in Five Months as Inflows Surge

  • Equity inflows of $1.1 billion are biggest since April
  • Bonds decline, pushing up 10-year yield by most since November

South Korea’s won completed its biggest weekly advance since October as foreign investors flocked to the nation’s equities on optimism global economic growth is set to improve.

Overseas funds have poured a net $1.1 billion into local stocks in five days, the most since April, after the benchmark Kospi index climbed to the highest level this year. Global shares rallied this week as U.S. jobs and manufacturing data beat estimates and China cut banks’ reserve requirements, bolstering confidence in the global economy. The won also rose as the dollar retreated after funds returned to emerging markets amid uncertainty about the pace of the Federal Reserve’s policy tightening.

"There’s been a retracement in the dollar generally," said Patrick Bennett, a strategist at the Canadian Imperial Bank of Commerce in Hong Kong. "We’ve seen also that some portfolio flows have returned to Korea."

The won appreciated 1 percent to close at 1,203.35 a dollar, taking its weekly gain to 2.9 percent, according to data compiled by Bloomberg. The currency’s biggest five-day gain since Oct. 9 helped pare its 2016 decline to 2.6 percent. The Kospi index rose 1.9 percent from Feb. 26 and on Thursday reached its highest level since Dec. 30.

Government bonds declined, with the 10-year yield rising 11 basis points this week to 1.89 percent, Korea Exchange prices show. That’s the biggest jump for a benchmark note of that tenor since November. The three-year yield increased seven basis points from Feb. 26 to 1.53 percent.

Reports due next week are forecast to show Chinese exports shrank the most since March while factory-gate deflation persisted, which could renew pessimism about growth in South Korea, which counts China as its biggest overseas market.

The won "is a positive near-term story in terms of consolidation, but I wouldn’t say the worst is behind us," said Bennett. "There are still challenges for Korea on the basis of the Chinese economy."

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