Place Your Bets – Korean Won to Rise: Pro
Associate Editor, CNBC
The South Korean won should remain relatively strong given the underlying economic fundamentals of the Korean economy and better global economic headwinds,Thio Chin Loo, Senior Currency Strategist at BNP Paribas told CNBC Thursday.
"The Korean won is well supported [but] it's a policy of intervention that has stopped the won appreciating more. But the macro drivers and Korea's relatively strong fundamentals [and] relatively high yielding currency still puts it in a good light for appreciation [going forward],"
South Koreans go to the polls in December 19th to select their next president and there are suggestions that if the opposition gets into power there could be intense discussions with the Japanese on more quantitative easing there which could weaken the yen further. A weaker yen is usually a negative for Korean export growth because of price competitiveness as SK and Japan compete in a number of sectors on the global stage.
Thio said the yen was a key competitor of South Korea and{the won] appreciated more than 10 percent against the yen in the last two months.
"Market players are aware that pressure could be piled on the Bank of Japan and the yen as a carry trade has come back into play in the last one month. And yen shorts have increased significantly over the month. The better macro story in Asia ex-Japan has led to a few carry trades against the yen and the won – where it has outperformed the yen significantly in the last few months," Thio added.
Figures for third quarter GDP for South Korea appeared to affirm fears of a slowing economy as it stuttered to just 0.1 percent – last seen in the midst of the global financial crisis three years ago. The slowdown has been blamed on slowing exports, high household debt and shrinking consumer spending.
Market consensus suggests the Bank of Korea will cut rates in the New Year. Thio said this cut would be supportive of Korean assets and therefore the Korean won.
"Players are a mixture of speculators and real players and on the real side if you believe as real players do that the global economy performs better next year then you would expect Korean exports to look better which would then support the Korean won," she added.
