Global custodian targets 1,390-1,400 won per dollar by year-end
The South Korean won has limited room to strengthen further in the near term, as exporter dollar-selling flows have weakened and demand for overseas stocks remains strong, according to State Street Markets.
"The Korean won has already strengthened to its capable extent," Choi Ji-uk, senior macrostrategist for the Asia-Pacific region at State Street Markets, said at a media roundtable held at the custodian bank's Seoul office on Thursday.
The won, which had dipped to its weakest point since the global financial crisis in 2009, trading in the 1,560s per dollar in early June, subsequently strengthened to the low 1,330s earlier in September.
Despite the recent rally, Choi said State Street has shifted to an underweight position on the won about two weeks ago, adding that the bank expects the currency to weaken to around 1,390-1,400 per dollar by year-end.
"Dollar-won conversions related to SK hynix's American depositary receipt have waned, while a substantial amount of dollar selling related to corporate tax payments has already been absorbed. Exporters' dollar-selling flows have also weakened in September, as companies have already converted a significant portion of their dollar holdings," Choi said.
"The won's move toward 1,330 per dollar appears to have also tempered expectations for further gains, as the level is close to last year's peak," Choi said.
The equity market environment is also weighing on the won. According to the Korea Securities Depository, Korean investors recorded net purchases of $4.64 billion and $1.96 billion of US stocks in July and August, respectively. In September, they had net purchased $700.33 million as of Thursday.
"As the Kospi has undergone a correction, domestic investors have been shifting funds into overseas stocks, although the outflows have been less pronounced than in the fourth quarter of last year," Choi said.
"Foreign investors have also continued to sell Korean shares, albeit at a measured but steady pace."
Pricing in such concerns, the won's rally has lost steam in recent sessions. On Thursday, the won was quoted at 1,382.2 per dollar as of 3:30 p.m., losing 13.6 won from the previous session.
Choi, however, said the bank remained overweight on the won over the medium to long term, citing the resilience of the Korean economy.
"Korea's historically large current account surplus, potential corporate tax-related dollar selling slated for the first quarter of next year and the need for Samsung Electronics and SK hynix to convert their dollar holdings into won to fund shareholder returns will support the won," he said.
While the Korean won has strengthened in recent weeks, the Japanese yen, often seen as a proxy for the won, has strengthened only marginally, raising questions over whether the long-standing correlation between the two currencies is beginning to break down.
"Korea and Japan share similarities, including geographical proximity and expansionary fiscal policies. However, the won's appreciation has outpaced that of the yen. This suggests the two currencies' trajectories will increasingly diverge over the long term," Choi said.
silverstar@heraldcorp.com
