Korean Won Pressured by Eastern Europe Debt Risks, Goldman Says

By Patricia Lui

Feb. 23 (Bloomberg) -- South Korea’s won may be pressured by the worsening financial crisis in Eastern Europe because of links between the country and the region, according to Goldman Sachs Group Inc.

About 62 percent of South Korea’s external debt is owed to European banks, which are in turn “heavily exposed” to Eastern Europe, Kwon Goohoon, a Seoul-based economist at Goldman wrote in a report today. A worsening of the financial crisis there could make it difficult for Korean banks to roll over their European debt, he added.

Korean exports will be negatively impacted as the nation ships up to 6.5 percent of its goods to Eastern Europe, the note read. Finally, Korean companies account for about 10 percent of foreign direct investments in Eastern Europe, largely in the automobile, retail and banking sector and these firms may incur losses as the currencies there depreciate, Kwon said in the note.

“We see upside risk from the possible turmoil in Eastern Europe to our dollar-won forecasts of 1,450, 1,400 and 1,300 on a three, six and 12-month horizons,” Kwon wrote.

The won traded at 1,506.30 as of 9:20 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The currency fell to 1,515.25 on Feb. 20, the weakest since Nov. 24. It reached 1,524.50 on Nov. 21, the lowest in more than a decade.

To contact the reporters on this story: Patricia Lui at plui4@bloomberg.net