Bloomberg News

Won Strengthens Most in Two Weeks as North Korea Concern Eases

December 20, 2011

Dec. 20 (Bloomberg) -- South Korea’s won rebounded from a 10-week low as concern eased that North Korean leader Kim Jong Il’s death will heighten tension on the Korean peninsula. Government bonds advanced.

The Kospi Index of shares gained 0.9 percent, after sliding 3.4 percent yesterday amid concern Kim’s death will lead to instability in the North. South Korea’s financial markets have recovered fast from North Korea-related shocks in the past, Vice Finance Minister Shin Je Yoon said at a meeting today, adding that authorities will closely monitor currency fluctuations.

The won gained the most in more than two weeks, strengthening 1.1 percent to 1,162.18 per dollar in Seoul, after dropping 1.4 percent yesterday, according to data compiled by Bloomberg. The currency touched 1,179.95 yesterday, the weakest level since Oct. 7.

“The currency extended gains as the Kospi rose and exporters sold dollars to convert income,” said Han Sung Min, a Seoul-based currency dealer at Busan Bank. “In previous North- related risks, the won fell a lot on the day of the news, before rebounding the following day. It shows investors have learned a lesson from the past.”

KB Asset Management Co., a unit of South Korea’s second- largest financial services group, purchased three- and 10-year bond futures yesterday after prices on the debt slid to seven- week lows, according to Moon Donghoon, who oversees 11 trillion won ($9.5 billion) as the company’s managing director of fixed- income in Seoul. Kim Hee Seok, head of investment strategy at National Pension Service, South Korea’s biggest investor, said the fund bought stocks yesterday.

Intervention Risk

“North Korea-related uncertainties will continue to affect markets today, but currency-market volatility will ease,” said Lee Jin Ill, a Seoul-based currency dealer at Hana Bank in Seoul. “Investors are also aware of the risk of government intervention.”

North Korea’s government issued a statement yesterday calling on residents to “loyally follow” Kim Jong Un, one of Kim Jong Il’s sons. The communist nation in 2009 defied threats of United Nations sanctions to test nuclear arms and was held responsible last year for the sinking of a South Korean naval vessel as well as a deadly cross-border artillery attack.

A smooth leadership transition in North Korea won’t affect the credit ratings of South Korea, Kim Eng Tan, a Standard & Poor’s analyst in Singapore, said yesterday in an interview. Thomas Byrne, a senior vice president at Moody’s Investors Service in Singapore, said yesterday that Kim’s death is unlikely to change South Korea’s “economic and financial fundamentals.”

Bonds Gain

The yield on South Korea’s 3.5 percent bonds due September 2016 declined four basis points, or 0.04 percentage point, to 3.53 percent in the biggest decline since Nov. 30, according to Korea Exchange Inc. prices. Yesterday’s closing rate was the highest since Nov. 2.

“Investors in South Korean bonds are aware of North Korean risks and have put money in regardless,” Chung Bong Hyun, who oversees 30 trillion won of assets as head of the capital trading and investment department at National Agricultural in Seoul, said over phone yesterday. “We know the status of Kim Jong Il’s son, Kim Jong Un, isn’t stable, but view market volatility as a profit-making opportunity.”

--Editors: James Regan, Anil Varma

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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