In Asian Emerging-Market Currency Plays, Won Reigns Supreme (1)

(Bloomberg) -- As the most sensitive emerging Asian currency, South Korea’s won provides the best proxy for investors looking to bet on how the region reacts to U.S. President Donald Trump.

The currency’s volatility is 11 percent for the past year, more than all of its peers in the region, including the Malaysian ringgit and Indonesian rupiah, according to data compiled by Bloomberg. The won is also the strongest, rising 5.3 percent against the dollar year-to-date.

“The won is very sensitive to political uncertainties in the U.S., and in particular now, in the run-up to the U.S. fiscal policies to be announced by Trump in the coming weeks,” said Yann Quelenn, market strategist at Swissquote Bank SA, the second-most accurate won forecaster in Bloomberg’s quarterly rankings.

The won has so far remained resilient to both a political scandal that led to the impeachment of South Korea’s President Park Geun-hye and concerns that Trump’s protectionist policies will hurt exports that the nation’s economy is highly dependent upon. Inflows of $5.7 billion into the nation’s bonds and equities have supported the currency.

Read More: South Korea’s political scandal

“The Korean won is the most-liquid currency in Asia’s EM,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “It has a deeper and more advanced financial market.”

The won’s average daily trading volume increased 31 percent to $84 billion in 2016 from 2013, the most among global emerging currencies after the Chinese yuan, the Mexican peso and the Hong Kong dollar.

For Eddie Cheung, foreign-exchange strategist at Standard Chartered Plc, which ranked top forecaster for emerging Asia currencies, the won reflects the health of Asian trade. Exports from the region have shown signs of recovery amid expectations growth will pick up in the U.S. and boost demand for goods from companies such as South Korea’s Samsung Electronics Co. and Hyundai Motor Co.

“There are a lot of multinationals or corporates there that are externally oriented,” Hong Kong-based Cheung said. “The Korea trade numbers are a good indicator of where Asian trade is going in general.”

South Korea’s exports rose a better-than-expected 11.2 percent on-year in January, the most in nearly five years.

(Updates currency performance in the second paragraph and flow data in the fourth.)

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net, Yumi Teso in Bangkok at yteso1@bloomberg.net.

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Will Davies

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