Asian Currencies: Korean Won Leads Declines After S&P Warning

By Lilian Karunungan

Oct. 16 (Bloomberg) -- South Korea's won led declines in Asian currencies, slumping the most since the International Monetary Fund bailed the nation out in December 1997, as the credit-market turmoil makes it difficult for banks to pay debt.

Standard & Poor's said yesterday it may cut credit ratings for Kookmin Bank and six other Korean financial companies because of possible difficulties refinancing maturing debt. Eight of Asia's 10 most-active currencies fell as regional stocks dropped on concern economic growth will cool as the U.S. slips into a recession.

``The U.S. should already be in a recession and that will have an impact on Asian exports,'' said Ang Kok Heng, who manages $156 million as chief investment officer at Phillip Capital Management in Kuala Lumpur. ``Investors are making a 180-degree retreat'' from emerging-market assets, he said.

The won fell 6 percent to 1,318 against the dollar as of 12:50 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It slumped as much as 12 percent to 1,399.95 earlier. Singapore's currency slid 0.9 percent to S$1.4815 from S$1.4686 late in Asia yesterday. It reached S$1.4851 on Oct. 10, the lowest level since Oct. 4, 2007.

The MSCI Asia-Pacific Index of regional shares fell 6.4 percent after the Standard & Poor's 500 Index slumped 9 percent yesterday as the biggest drop in U.S. retail sales in three years suggested a deepening recession.

Risk Aversion

The Korean currency extended this year's loss to almost 30 percent as the Kospi stock index fell by as much as 7.6 percent to 1,238.77.

``Risk aversion returned,'' said Dariusz Kowalczyk, a strategist with CFC Seymour Ltd. in Hong Kong. ``It will be very difficult, if not impossible, for Korea to roll over its short- term debt.''

South Korea's foreign-exchange reserves dropped in each of the last six months, sliding $24.6 billion to $239.7 billion as policy makers intervened to stem the won's slide. Central banks buy or sell overseas currencies to influence exchange rates.

The nation has been building up its currency reserves since the Asian financial crisis led to the won halving in value in 1997. The government secured a $57 billion loan from the International Monetary Fund at the time to help repay overseas debt.

South Korea plans to sell as much as $5 billion in foreign- currency stabilization bonds next year, a finance ministry official, who declined to be named, said in a phone interview today.

The government will sell the global bonds to provide a benchmark yield for other Korean debt and increase its foreign- currency reserves, Yonhap News reported earlier today.

Recession Concern

The Singapore dollar fell to near a one-year low against the U.S. dollar on concern a global recession will undermine growth in the island's economy.

``Fears about a global recession are pushing the Singapore dollar lower,'' said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. ``The trend for selling Asian currencies may persist for a while.''

A government report last week showed Singapore fell into the first recession since 2002, spurring the central bank to stop a policy of favoring gains in the currency, in order to support the economy.

The Monetary Authority of Singapore, which relies on the currency rather than interest rates as its policy tool, said on Oct. 10 it's shifting to a ``zero-percent appreciation'' stance.

Worker Remittances

The Philippine peso fell to an 18-month low on concern the U.S.-led global economic slowdown will reduce the country's exports and remittances from overseas nationals. The Philippine benchmark stock index fell 4.7 percent.

``Electronics exports and overseas worker remittances may be in danger,'' said Roland Avante, treasurer at Chinatrust (Philippines) Commercial Bank in Manila. ``There are a lot of clients shifting to dollars. At the end of the day it's still the currency that makes the world go round.''

The currency declined as low as 48.075, the weakest since April last year, before trading at 48.04 in Manila, according to Tullett Prebon Plc.

The U.S. is the Philippines' biggest export market and source of remittances from overseas workers. Exports make up about a third of the economy.

``If the economy worsens, exports will be bad, unemployment will rise,'' Avante said. ``Where will the peso draw its strength from?''

Elsewhere, the Malaysian ringgit dropped 0.3 percent to 3.5225 and the Thai baht fell 0.4 percent to 34.27. Taiwan's dollar weakened 0.4 percent to NT$32.54. The Indonesian rupiah slipped 0.4 percent to 9,825 and Vietnam's dong was unchanged at 16,595.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net;