Korean Won Falls, Touching Lowest Since 1998, on Weak Exports

By Kim Kyoungwha

March 2 (Bloomberg) -- South Korea’s won weakened for a third day, touching the lowest since 1998, on concern that sliding exports will starve the nation of foreign exchange needed for banks to service overseas debt. Bonds fell.

The currency has declined 20 percent this year, the biggest drop among the 10 most-traded Asian currencies outside Japan as a global recession prompted foreign investors to shun emerging- market assets. Exports fell a fourth month in February, the longest run of declines since 2002, on weaker demand from the U.S., Japan and Europe, the Ministry of Knowledge Economy said.

“The won will remain under pressure as fewer exporters’ receipts are coming in with global unrest worsening a shortage of dollars,” said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. “There’s always chances for government intervention which may reduce the volatility.”

The won fell 2.3 percent to 1,574 per dollar as of 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The currency slumped to 1,596, the lowest since March, 1998. The Kospi stock index shed 4.2 percent as global funds sold more Korean shares than they bought for a 15th straight day, according to Korea Exchange.

Overseas shipments dropped 17.1 percent to $25.8 billion from a year earlier, following January’s record 33.8 percent slump, the ministry said today.

The nation expects a trade surplus of $20 billion this year, more than its previous forecast of $12 billion, as imports slump, online news agency Edaily reported today, citing a trade ministry official.

Demand for the won also weakened after the nation’s industrial production tumbled a record 25.6 percent in January. Output fell for a fourth month after dropping 18.7 percent in December, the statistics office said today in Gwacheon. That compares with a median estimate of a 26.4 percent decline in a Bloomberg News survey of eight economists.

Bonds Fall

Bonds fell as a sale of debt barely attracted enough orders. The yield on the benchmark five-year note rose 6 basis points, or 0.06 percentage point, to 4.63 percent and the three-year bond yield jumped 5 basis points to 3.87 percent, according to Korea Financial Investment Association.

The government sold 2.28 trillion won ($1.5 billion) of three-year bonds at a yield of 3.87 percent, the Ministry of Strategy and Finance said. Investors offered to buy 2.45 trillion won of debt in total, or 1.08 times the amount on offer, the ministry said on its Web site.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;