Photographer: SeongJoon Cho/Bloomberg

Asia's Top-Performing Currency Is Missile-Proof

Updated on
  • New president’s agenda seen as friendly to investors
  • Current-account surplus providing steady influx of capital

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After three years of losses against the dollar, South Korea’s won didn’t begin 2017 looking like a winner -- with the U.S. raising interest rates and tensions rising with its nuclear-armed neighbor.

Just over half-way through the year, however, the currency is up 7.8 percent against the dollar, making it the top performer in Asia. And, with a new president pledging to spread the nation’s wealth and dynamism beyond the conglomerates known as chaebol that have long dominated the economy, some are betting there’s more appreciation to come. It remains within 3 percent from its 2016 high.

“You may not want to be overly bullish but certainly any correction is an opportunity to buy” the won, said Desmond Soon, head of investment management for Asia ex-Japan at Western Asset Management Co., which oversees $433 billion. He suggested a good entry level for bets on the currency at around 1,150 per dollar. It was at 1,120.70 on Wednesday.

One major draw for the won is a strengthening in global trade that’s benefited South Korean exporters, along with regional neighbor Taiwan, which has also seen its currency appreciate this year. South Korea’s current-account surplus is projected by the International Monetary Fund to exceed 6 percent of its gross domestic product this year and the next two years.

“Ironically, the ones that are appreciating are the low yielders,” Soon said. South Korean 10-year government bonds yield 2.26 percent, a little less than that of U.S. Treasuries. By contrast, Malaysian debt yields 3.96 percent and India’s notes 6.45 percent.

Rapprochement Policy

President Moon Jae-in has spurred foreign investor interest after taking office in May on a platform of reducing the influence of the chaebol and seeking a diplomatic rapprochement with its belligerent, missile-firing neighbor to the north. South Korea’s stocks and bonds attracted a net $4.6 billion so far in July, reversing the outflows seen earlier this month.

The won hardly blinked after North Korea said on July 4 it fired an intercontinental ballistic missile for the first time. Moon is currently following on campaign pledges to pursue dialogue with Kim Jong Un by proposing some military and humanitarian exchanges.

Export-oriented economies like South Korea as well as Taiwan are benefiting from an upturn in the global technology sector that’s still “has got some legs to it,” Jonathan Cavenagh, head of emerging Asia currency strategy at JPMorgan Chase & Co. in Singapore, said in a Bloomberg Television interview with Betty Liu and Yvonne Man, last week.

“Korea and Taiwan are the two currencies where we do like over the medium term but we’re not necessarily positioned in those currencies right now,” Cavenagh said. “We want to see a little bit of retracement, better entry levels" before diving in, he said.

JPMorgan’s Cavenagh discusses Yellen’s testimony and its impact on emerging market currencies

(Source: Bloomberg)
(Updates figures in second, third, fifth and sixth paragraphs.)
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