Won’s muscle, stability lure traders

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Won’s muscle, stability lure traders

Traders whipsawed by depreciating asset values from India to Brazil are plowing funds into South Korea, taking advantage of a current-account surplus twice the size of China’s and turning the won into Asia’s best currency.

The won gained 2.3 percent against the dollar this quarter, compared with declines of 9.6 percent for India’s rupee and 6.2 percent for the Brazilian real. One-month implied volatility on won options, which reflect the outlook for fluctuations, is falling the most among major peers, reaching a three-month low of 6.69 percent on Aug. 12 from 11.4 percent at the end of June.

The stability is enabling Korea to maintain the lowest interest rates in three years and support economic growth as policy makers from India to Indonesia and Brazil are raising borrowing costs to stem currency depreciation. With a current-account surplus equal to 4.9 percent of gross domestic product, more than China’s 2.6 percent, Korea is better positioned than its peers as the Federal Reserve’s plan to cut monetary stimulus lures cash from developing nations.

“The won is one of my conviction bets,” said Edwin Gutierrez, a fund manager who helps invest about $12 billion of emerging-market debt at Aberdeen Asset Management. “As a current-account-surplus country, they are not beholden to foreign inflows.”

Investors who bought Korean debt would have earned 1.4 percent in the year through Aug. 22, including appreciation in bond prices and currency gains, according to Bank of America’s Korea Government Index. That compares with losses of 16 percent on Brazilian notes and 10 percent on Indian bonds. Bloomberg
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