SEOUL Jan 27 After a six-month run of gains,
the South Korean won looks set to falter as concerns over
additional Fed tapering and worries about China's economy led to
its biggest weekly drop in seven months versus the dollar last
The won, which had soared to a five-year high
just four weeks ago, has seen those gains unravel as offshore
investors build long dollar positions. On Monday it ended down
another 0.3 percent at 1,083.6 to the dollar after trading as
low as 1,087.7 - its weakest since Sept. 13.
"South Korea is starting to re-couple with the global
markets," said Hyundai Futures currency analyst Lee Dae-ho. "Now
that companies like Samsung Electronics and Hyundai Motor
reported weaker fourth-quarter earnings, there are concerns that
the fundamentals of South Korea's economy are softening."
Analysts say the dollar-won rate could rise to between 1,095
- around the 200-day moving average - and 1,100 in coming weeks
as the greenback continues to gather momentum.
The won was among the best performers in the region during
the second half of 2013, benefiting from strong inflows to South
Korean markets as the country's strong fundamentals and signs of
accelerating growth distinguished it from other emerging
Those fundamentals - a hefty current account surplus, small
budget deficit and substantial foreign-exchange reserves -
should help shield the won from drastic losses, analysts say.
But further weakening looks inevitable as the U.S. Federal
Reserve's unwinding of its bond purchases is seen lifting the
dollar and triggering repatriation of funds from emerging
markets. Concerns about the global economic outlook are also
hitting South Korean firms, dimming the attraction of the won.
Stock market heavyweights Samsung Electronics Co Ltd
and Hyundai Motor Co last week reported
weaker-than-expected quarterly earnings, though some of this was
blamed on the stronger won during the
Foreign investors withdrew 1.86 trillion won ($1.7 billion)
from South Korean stock markets in December - the biggest
outflow since June - and have taken out around 1.4 trillion won
worth of funds from the main stock exchange so far this month,
according to the latest data.
'MORE GOOD THAN HARM'
Meanwhile, signs of slowing growth in China, such as the
flash January Markit/HSBC purchasing managers' index showing a
contraction in manufacturing activity, have raised concerns
about South Korea's ability to cope with weaker conditions in
its biggest export market.
"At this point, external conditions favour the dollar
against the won and offshore players such as hedge funds appear
to be betting that the dollar has more room to rise," a currency
dealer in Seoul said.
The yen's current rebound may heap further pressure on the
won. The won is down more than 5 percent against its Japanese
peer so far this month, poised to snap six months of gains.
KEB Futures currency analyst Chung Kyung-parl said the
unwinding of shorts on the yen-won cross, triggered by a flight
to safety, was a key driver in the won's decline.
While Vice Finance Minister Choo Kyung-ho said on Monday
that recent market movements warrant close scrutiny, there were
no reports of intervention last week. That suggests that Seoul
may be inclined to let the correction play out for now without
directly defending the won.
The won's ongoing slide will help address concerns about
South Korean exporters' price competitiveness against their
Japanese rivals, while subdued inflation means there is little
risk of stoking higher inflation from the weaker won.
"It seems Korean policymakers have judged that weaker won
would do more good than harm in the current macro environment,"
Young Sun Kwon, Hong Kong-based economist for Nomura, said in a
report, adding that he does not expect South Korea to make any
direct policy responses in the absence of a "synchronised global
($1 = 1080.3500 Korean won)
(Additional reporting by Yena Park; Editing by Chris Gallagher)