Won, Kospi surge as optimism over economy grows

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Won, Kospi surge as optimism over economy grows

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Seoul stock and currency markets had a stellar day yesterday as both the Korean won and the main stock index jumped to their highest point this year, shattering records set only days earlier.

The U.S. Federal Reserve Chairman Ben Bernanke’s upbeat comments on the path of the U.S. economy and increasing confidence encouraged more investors to reach their hands into their pockets and pull out funds to wager on markets that were only recently considered too risky.

The won yesterday surged to 1,211.3 against the U.S. dollar, breaking this year’s low of 1,218 set on Sept. 5.

A flurry of recent upbeat economic data further whetted investors’ appetite for more Korean stocks and currency, pushing the benchmark Kospi to another yearly high.

The Kospi closed at 1,683.33, the highest point since June 27, 2008, when it closed at 1,684.45.

The won rose by more than 30 against the greenback this month alone, as a growing number of foreigners sought to buy more won in order to snap up Korean shares in the Seoul stock markets due to improved investor sentiment.

Foreign investors bought a net of 888.1 billion won ($735.4 million) yesterday, continuing to report net positive purchases for nine days in a row.

The figure was also the biggest daily net purchase by foreigners so far this year and the fourth-largest in history.

Bernanke said on the previous day that the U.S. recession is “very likely over,” during a Brookings Institution forum, fanning optimism about an upcoming economic recovery.

“More visible signs of global economic recovery are stabilizing the financial markets, and the rising stock purchases by foreigners also helped,” said Kim Sung-soon, a finance manager at the Industrial Bank of Korea in Seoul.

“Given the dollar supply and sentiment in the currency market, the won-dollar rate will likely slump down to the 1,200 mark,” he added.

Vice Finance Minister Hur Kyung-wook’s recent comment that the strengthening of the won against the dollar was “doing little” to hurt the country’s exporters also fanned speculation that the government is unlikely to intervene in the market to curb the won’s gains.

Clemens Kang, chief strategist at Woori Investment & Securities, also said the foreign investors will likely keep picking up more Seoul shares until the U.S. economy firmly returns to its pre-crisis level, which he said may not come until early 2012.

“Emerging markets like Korea are showing recoveries that are far faster than the advanced economies, and more investors are betting the greenback will remain weaker for quite some time,” said Kang.


By Jung Ha-won [hawon@joongang.co.kr]
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