By - May 4, 2011 5:05 AM GMT+0500
Asian fund managers are stepping up purchases of South Korean assets after exports reached a record high following Japan’s earthquake and policy makers allowed faster gains in the won to tackle inflation.
Western Asset Management Co. said it added to its bet on the won in the last two weeks, Baring Asset Management Asia Ltd. plans to include Korea in an Asian bond fund it will start in May, and Pacific Investment Management Co., manager of the world’s largest bond fund, said last month the currency was “undervalued.”
The won has advanced 5.4 percent against the dollar, the best performance among the 10 most-traded Asian currencies, since the March 11 earthquake and tsunami caused a nuclear crisis, power shortages and supply-chain disruptions in Japan. Goldman Sachs Group Inc. revised its three-month won forecast to 1,050 from 1,080 on April 26, saying appreciation is an effective way of tempering inflation.
“The case is appealing for investors to raise their won exposure, not just because of the opportunities created by the earthquake and tsunami,” Thomas Kwan, head of Asian debt investment in Hong Kong at Baring, which had about $55 billion of assets under management at end-March, said in an interview on April 28. “Because of the high inflation, the Bank of Korea is willing to allow more currency appreciation.”
Bonds held by overseas investors increased by a net 1.13 trillion won ($1.06 billion) in April, the biggest jump in six months, according to data from the country’s Financial Supervisory Service. They purchased a net 4.4 trillion won of South Korean stocks in the month, the regulator said. Net buying reached $202 million so far this week on track for a third week of additions, stock exchange data show.
The won will advance to 1,045 by the year-end, according to the median estimate in a Bloomberg survey of economists. The currency, which fell 0.3 percent to 1,068.80 yesterday, reached 1,064.60 on May 2, the strongest since August 2008.
“The rise in exports and the trade surplus are supporting the won,” said Sam Hong, senior vice president in charge of currency strategy at Seoul-based Shinhan Bank. “Still, the benefits may be short-lived, as exports are temporarily up helped by post-earthquake demand from Japan.”
Shipments to Japan jumped 70.1 percent in the first 20 days of April from a year earlier, helped by oil products, steel and mobile phones, the government said May 1. Exports account for about half of gross domestic product. The won has gained 3.5 percent versus the yen since March 11.
“The trade was very good despite the stronger won and the higher oil,” said Rajeev de Mello, who helps oversee $454 billion as head of Asian investment in Singapore at Western Asset Management, the Pasadena, California-based fixed-income unit of Legg Mason Inc. “I still think the Korean won has a lot of potential. I am sure there was some contribution” to the trade from Japan’s supply-chain problem, he said.
Japan’s economy was heavily impacted by its largest earthquake on record, with factory output dropping a record 15.3 in March from the month before and household spending falling 8.5 percent from a year earlier, government reports showed on April 28. Toyota Motor Corp., Japan’s biggest carmaker and a rival of Korea’s Hyundai Motor Co., said its global production fell 30 percent in March.
“There will be some additional demand for Korean parts and products when Japanese manufacturers can’t ship them, as they offer the similar grade and quality,” said Tatsuya Higuchi, senior money manager at Kokusai Asset Management Co. in Tokyo, which oversees about $56 billion of assets. “We remain bullish on South Korea.”
Won assets accounted for about 15 percent of Kokusai’s Asia Sovereign Open fund at the end of March, second only to the Indian rupee’s 19.6 percent, according to its website.
To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
Western Asset Management Co. said it added to its bet on the won in the last two weeks, Baring Asset Management Asia Ltd. plans to include Korea in an Asian bond fund it will start in May, and Pacific Investment Management Co., manager of the world’s largest bond fund, said last month the currency was “undervalued.”
The won has advanced 5.4 percent against the dollar, the best performance among the 10 most-traded Asian currencies, since the March 11 earthquake and tsunami caused a nuclear crisis, power shortages and supply-chain disruptions in Japan. Goldman Sachs Group Inc. revised its three-month won forecast to 1,050 from 1,080 on April 26, saying appreciation is an effective way of tempering inflation.
“The case is appealing for investors to raise their won exposure, not just because of the opportunities created by the earthquake and tsunami,” Thomas Kwan, head of Asian debt investment in Hong Kong at Baring, which had about $55 billion of assets under management at end-March, said in an interview on April 28. “Because of the high inflation, the Bank of Korea is willing to allow more currency appreciation.”
Bonds held by overseas investors increased by a net 1.13 trillion won ($1.06 billion) in April, the biggest jump in six months, according to data from the country’s Financial Supervisory Service. They purchased a net 4.4 trillion won of South Korean stocks in the month, the regulator said. Net buying reached $202 million so far this week on track for a third week of additions, stock exchange data show.
Fighting Inflation
Won gains are curbing inflation, with consumer prices rising 4.2 percent from a year earlier in April, after a 4.7 percent gain in March, official data showed on May 2. The Bank of Korea, which next meets on May 13, raised the seven-day repurchase rate to 3 percent in March, the fourth increase since June.The won will advance to 1,045 by the year-end, according to the median estimate in a Bloomberg survey of economists. The currency, which fell 0.3 percent to 1,068.80 yesterday, reached 1,064.60 on May 2, the strongest since August 2008.
“The rise in exports and the trade surplus are supporting the won,” said Sam Hong, senior vice president in charge of currency strategy at Seoul-based Shinhan Bank. “Still, the benefits may be short-lived, as exports are temporarily up helped by post-earthquake demand from Japan.”
Japan Shipments Jump
Exports rose 26.6 percent in April from a year earlier to a record $49.77 billion, a May 1 report showed, creating a trade surplus of $5.8 billion, the most since October. The economy expanded 1.4 percent in the first quarter following a 0.5 percent gain in the preceding three months.Shipments to Japan jumped 70.1 percent in the first 20 days of April from a year earlier, helped by oil products, steel and mobile phones, the government said May 1. Exports account for about half of gross domestic product. The won has gained 3.5 percent versus the yen since March 11.
“The trade was very good despite the stronger won and the higher oil,” said Rajeev de Mello, who helps oversee $454 billion as head of Asian investment in Singapore at Western Asset Management, the Pasadena, California-based fixed-income unit of Legg Mason Inc. “I still think the Korean won has a lot of potential. I am sure there was some contribution” to the trade from Japan’s supply-chain problem, he said.
Japan’s economy was heavily impacted by its largest earthquake on record, with factory output dropping a record 15.3 in March from the month before and household spending falling 8.5 percent from a year earlier, government reports showed on April 28. Toyota Motor Corp., Japan’s biggest carmaker and a rival of Korea’s Hyundai Motor Co., said its global production fell 30 percent in March.
Korean Refiners Benefit
South Korean companies were already benefiting from a global economic recovery. SK Innovation Co., the nation’s biggest oil refiner, reported first-quarter net income of 853.3 billion won on April 29, nearly three times as much as the year before. S-Oil Corp., another refiner, had a more than fivefold increase in first-quarter profits.“There will be some additional demand for Korean parts and products when Japanese manufacturers can’t ship them, as they offer the similar grade and quality,” said Tatsuya Higuchi, senior money manager at Kokusai Asset Management Co. in Tokyo, which oversees about $56 billion of assets. “We remain bullish on South Korea.”
Won assets accounted for about 15 percent of Kokusai’s Asia Sovereign Open fund at the end of March, second only to the Indian rupee’s 19.6 percent, according to its website.
To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
