Seoul: Won set for worst quarterly loss since 2011 on stocks selloff

[SEOUL] The won headed for its biggest quarterly loss in four years as global investors fled South Korean stocks amid a worsening economic slowdown in China and a military standoff with North Korea.

Overseas investors sold a net US$7 billion of local shares in the three months to Sept 30 as the outlook for exports deteriorated and tensions across the heavily fortified border with North Korea in August hurt investor confidence. The won sank to a four-year low this month as data from China, the top destination for South Korean goods, pointed to a deeper slump following the yuan's devaluation of yuan, and as the US prepares to increase borrowing costs for the first time in almost a decade.

The won fell 6.6 per cent from June 30, the biggest drop since 2011, to 1,194.71 a dollar as of 10:38 am in Seoul, data compiled by Bloomberg show. The currency is set to retreat for the fifth quarter, its longest run of declines since the three months ended March 2009. It rose 0.1 per cent from Sept 25. South Korean markets were shut Monday and Tuesday for holidays.

"The main story in the currency market this quarter was foreigners selling stocks in search of safer assets amid a dimmer Korean economic outlook along with geopolitical events and external risks," said Kim Moon Il, an analyst at Eugene Investment & Securities Co in Seoul. "The won is set to weaken further in the fourth quarter as concerns about outflows from equities linger." Global funds were net sellers of shares in the benchmark Kospi index for 29 straight days through Sept 15, the longest selloff since July 2008. Overseas investors bought a net US$4.5 billion of local bonds this quarter.

The Bank of Korea cut its 2015 growth forecast in July to 2.8 per cent from 3.1 per cent, and will review its outlook at an Oct 15 monetary policy meeting. South Korea's exports decreased 6.4 per cent in the first 20 days of September from a year earlier, Customs Service data showed Sept 21, and are set to shrink for the ninth month. Overseas sales probably fell 11.8 per cent this month, according to the median forecast of 14 analysts surveyed by Bloomberg before official data due Thursday.

Government bonds rose on Wednesday, with the three-year yield falling three basis points from Sept 25 to an unprecedented 1.59 per cent, Korea Exchange prices show. It has dropped 19 basis points this quarter. The 10-year yield declined four basis points from Friday to 2.10 per cent, the lowest since April 10, and has decreased 35 basis points from June 30.

BLOOMBERG