Won recovers as investors turn positive, funds shun China

The won, which has been weak for months, recovered dramatically this week.

An electronic display board at Hana Bank in central Seoul shows the won trading at 1,364.80 to the dollar on Wednesday. [YONHAP]

The won, which has been weak for months, recovered dramatically this week.

It was lifted by a combination of factors, including a current account surplus, improved investor sentiment and significant interventions in the debt markets.

Korea's currency ended trading on Wednesday at 1,364.80. It was 1,444.2, a 13-year low, on Oct. 25.

The U.S. Dollar Index has fallen to around 109. In late September, the index hit 114.

A recent turnaround of foreign investor sentiment contributed to strengthened won as it raised demand for local currency.

In September, foreign investors net sold 2.52 trillion won of Korean stocks. Sentiment recovered in the following month with the net purchase of 3.05 trillion won of shares. The purchases have continued, with a 2.22 trillion won of net buying through Nov. 9 this month.

The net purchase was helped by recent portfolio adjustments to pull funds from China into Korea by institutional investors, said Park Sang-hyun, an economist at Hi Investment & Securities.

The Teacher Retirement System of Texas announced in September it would cut its exposure to China and slightly increase its exposure to Korea.

The change will be implemented over a six-month transition period.

Samsung Electronics, the largest company in Korea by market cap, closed at 62,000 won on Wednesday, up from 51,800 won on Sept. 30.

Another contributing factor is the chance of Republican Party gains in the U.S. midterm election, which could frustrate President Joe Biden’s fiscal policy.

Biden suggested last week he may impose a windfall tax on major oil companies after they reported record profits on high oil prices. He also proposed expanding health coverage and child care tax credits in 2021.

Republican victories in the election could put the brakes on plans, possibly slowing inflation and the speed of the Federal Reserve’s aggressive rate increases.

There are expectations that the deterrence of the Biden’s plans “would lower the yield for the government bond, which could weaken the dollar and raise the value of won,” Park added.

A rise of energy imports and the Fed’s hawkish monetary policy are possible factors weighing on the won, said Kwon Ah-min, a foreign exchange economist at NH Investment & Securities in a report Wednesday.

Korea swung to a $1.61 billion current account surplus in September from the previous month’s deficit. But the surplus was much smaller than a year earlier when the corresponding figure was $10.51 billion.

Hwang Sang-pil, head of the Bank of Korea’s economic statistics bureau, said the state of “volatility will continue for some time due to a high level of external uncertainties.”

Missed bond payments by a company related to the developer a Legoland Resort Korea also weigh on the market, as does Heungkuk Life Insurance’s convention-defying announcement of a delay in the redemption of its perpetual bond on Nov. 1.

The financial authorities announced plans to expand funding for liquidity programs to at least 50 trillion won in late October. The Bank of Korea will activate 6 trillion won in repurchase agreements, a form of short-term borrowings for dealers in government securities, through Jan. 31 to help financial firms raise cash.

BY JIN MIN-JI [jin.minji@joongang.co.kr]