Won Slumps Most in Almost Five Years as U.K. Votes to Leave EU

  • Kospi index tumbles 3.1 percent as Brexit sparks turmoil
  • South Korea government bond yields slide to new records

South Korea’s won tumbled by the most in almost five years after the U.K. voted to leave the European Union, adding to concern about foreign capital outflows from the Asian nation and its capacity to turn around a slump in exports.

The currency closed 2.5 percent weaker at 1,179.32 per dollar in Seoul, posting the biggest decline since September 2011, according to prices from local banks compiled by Bloomberg. The slide prompted the government and Bank of Korea to call an emergency meeting after which Vice Finance Minister Choi Sang Mok said all possible measures will be used to stabilize financial markets, including smoothing operations.

A disruption in trade with Britain could be costly for South Korea as the country’s exports have contracted for an unprecedented 17 months through May. Finance Minister Yoo Il-ho said Wednesday the economy may worsen in the second half given external uncertainties including the U.K. referendum, China’s volatile markets and the prospect of U.S. interest-rate increases. The benchmark Kospi index of shares plunged 3.1 percent at the close and government bond yields dropped to records.

“Investors are pretty shaken now,” said Min Gyeong Won, a currency analyst at NH Futures Co. in Seoul. “The market had been pricing in speculation that the U.K. would remain in the EU. Now it is unwinding it.”

BOK Intervention

The pound dropped to its lowest level against the dollar since 1985 as the U.K. referendum ended with a 52 percent to 48 percent victory for the “Leave” campaign. The yen surged and a measure of the greenback climbed as investors sought safe-haven assets.

The won could retreat further to the mid-1,190 levels next week, Min said. A measure of one-month implied volatility in the won surged 1.6 percentage points on Friday and is the highest in Asia after the Japanese yen and Malaysian ringgit. Overseas investors sold a net $129 million of South Korean shares this week, adding to last week’s $365 million outflow.

The yield on South Korea’s three-year bonds declined 10 basis points to an unprecedented 1.25 percent and the 10-year yield slid 14 basis points to an all-time low of 1.5 percent, Korea Exchange prices show.

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