Won falls to five-month low as authorities issue first joint warning in 18 months
A screen at Hana Bank’s dealing room shows the Kospi standing at 3,538.67 and the won’s value per dollar quoted at 1,430 shortly after the opening bell on Monday. (Im Se-jun/ The Korea Herald)
Amid renewed concerns over an escalation of the trade war between the United States and China, South Korea’s benchmark Kospi index retreated Monday from Friday’s record high above 3,600, while the Korean won fell to a five-month low as investor risk aversion deepened.
The sell-off came as tensions flared between Washington and Beijing over rare earth exports, triggering a sharp decline in Korean stocks.
As of 2 p.m. Monday, the Kospi stood at 3,554.26, down 56.34 points, or 1.56 percent, from the previous trading day. After opening at 3,550.08, the index slipped to as low as 3,522.54 in early trading before rebounding to reclaim the 3,570 level. It hovered in the 3,550 range around noon and fluctuated within that band as of press time.
The drop came just one trading day after the index hit a record high of 3,617.86 on Friday.
Chip shares, including Samsung Electronics and SK hynix, plunged on concerns over China’s export restrictions on rare earths, dragging down the index.
Retail investors poured in 1.11 trillion won ($778 million) on the bourse. But foreign investors and institutional investors dumped shares worth 784 billion won and 401 billion won, respectively.
While the heightened trade uncertainty brought down the stock index, the Korean won slumped to its weakest level against the US dollar in five months on Monday.
It started trading at 1,430 per dollar as of opening, nosediving to its weakest level in five months since falling to 1,440 per dollar on May 2.
After further weakening to 1,434 won, the won recovered to 1,425 won per dollar only a minute later, showcasing extreme volatility. The won was quoted at 1,428.39 per dollar as of 2 p.m.
With the sharp depreciation of the Korean won, the forex authorities, referring to the Bank of Korea and the Finance Ministry, stepped up, issuing a verbal intervention.
“We are closely monitoring the market with caution over potential imbalances amid the recent increase in volatility of the Korean won due to domestic and external factors,” the statement read.
It was the first time in 18 months for the forex authorities to issue a joint verbal intervention on the market since April 2024, amid escalated tensions in the Middle East.
The statement signals that the authorities could intervene by buying or selling dollars to ease volatility on the market.
“With the unexpected headwind of the US-China trade conflict, the won-dollar exchange rate is expected to fluctuate at elevated levels of 1,420-1,430 won this week,” said Park Sang-hyun, an analyst at iM Securities.
He added, “In the short term, we need to keep the ceiling open up to 1,450 won.”
“Domestically, uncertainty over the $350 billion in US-bound investment negotiations is acting as a downward pressure on the won,” analyst Moon Da-woon at Daishin Securities said.
Korea has yet to settle how the $350 billion US-bound investment will be executed. The US has been demanding upfront cash investment, triggering a sharp depreciation of the local currency.
“It remains uncertain whether the upcoming Korea-US summit at the end of the month will result in agreements favorable to the won.”
silverstar@heraldcorp.com