Won falls slightly amid volatile Chinese financial market

By Kim Jae-won

The won fell slightly Tuesday hit by increasing volatility in China’s financial market and a continuing selloff by foreign investors in Korea’s stock markets, according to analysts.

The local currency closed at 1,210.30 won against the U.S. dollar, losing 0.5 won from the previous session. The benchmark KOSPI closed at 1,890.86 points, down 3.98 points, or 0.21 percent. The tech-heavy KOSDAQ dropped 0.54 percent to 671.30.

“The overnight Hong Kong Interbank Offered Rate (HIBOR) for the offshore yuan rose sharply to 66 percent, creating volatility in the market and pressuring the won to lose its value,” said Jeon Seung-ji, an analyst at Samsung Futures.

Jeon said that the Chinese currency in the offshore market is drying up because the People’s Bank of China is suspected of buying the yuan to prevent a drastic devaluation.

She said the selloff by foreign investors in the KOSPI also forced the value of the won to drop. Foreign investors extended their selloff rally, offloading a net 2.2 trillion won. Institutional investors scooped a net 2.3 trillion won, defending the index from the selloff. Retail investors sold a net 855.6 billion won.

Samsung Electronics dropped 0.52 percent to 1,146,000 won while Hyundai Motor also sank 0.36 percent to 139,500 won.

Analysts believe a possible U.S. rate hike in March, the second of its kind, may also be encouraging foreign investors to cash in their earnings at an early date.

Low oil prices are another reason for the weak won, according to analysts. Crude oil prices plunged 20 percent to $31 per barrel as of Tuesday afternoon from the beginning of this year in key markets.

Korea’s top financial regulator warned of greater market volatility, vowing to properly deal with it with a sense of alertness in order to ensure market stability.

“A variety of external uncertainties have rendered the local market volatile since the beginning of this year,” Financial Services Commission Chairman Yim Jong-yong said at a meeting with experts.

“We will be cautious and on alert while heeding chances of further increased volatility, although the aftereffects of unfavorable global factors on the local market will be limited,” he added.

A government task force will keep tabs on changing circumstances around the clock, and the financial authorities will closely communicate with investors at home and abroad, the regulator said.