Bullish calls for Korea won stay even as virus fears re-emerge
February 18 2020 11:55 PM
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An employee inspects sheets of South Korean 1,000 won banknote at the Korea Minting, Security Printing & ID Card Operating Corp factory in Geyongsan (file).

Bloomberg/Seoul

Analysts are keeping their bullish recommendations on the South Korean currency as they see the recent surge in coronavirus cases as temporary.
Citigroup Inc, Credit Agricole CIB and Scotiabank have lifted their forecasts for the won to as high as 1,155 per dollar.
Their optimism is helping the won, which trimmed losses that were triggered last week by the jump in new cases in Hubei, the Chinese province at the centre of the epidemic.
The South Korean currency remains the top-performing Asian currency this month with 0.7% gain.
“The jump in China infections this morning is predominantly seen as a temporary event due to changes in the disease’s testing method,” said Min Gyeong-won, an economist at Woori Bank in Seoul. “Market focus is now on whether infections will slow down again soon.” A slower rate of infection in China is likely to spur optimism that the economic impact from the outbreak will be limited. That’s likely to soften the blow to South Korea’s economy, which has seen slower tourist arrivals and supply-part disruptions to its plants. The won closed 0.3% lower at 1,182.95 per dollar, after dropping as much as 0.4% during the session. The currency had slumped to a four-month low last week amid heightened concerns over the coronavirus outbreak.
Here are some market views:
Gaurav Garg (Head of Asia FX & rates strategy, Citigroup): Recommends buying the won against dollar and yen as the currency is likely to retrace from “panic levels”. Sell one-month dollar-won NDF at 1,180, targeting a spot move below 1,155 with an indicative stop above 1,195.
Negative spillover from infections could dampen expectations of narrowing growth differential between the US and rest of the world, posing a challenge to the extent of bullishness for EM Asia FX beyond this retracement.
On a nominal basis, the won may strengthen more than the offshore yuan. Eddie Cheung (Emerging market strategist, Credit Agricole CIB):
“The jump in cases today reflects a methodology change in counting the cases – that doesn’t impact our core view”. Expects the Korean currency to rally further. Entered a short dollar-won trade last week, targeting a move back to 1,170; recommends stop at 1,191 in the dollar-won one-month NDF to lock in 0.25% profit.
The virus’s impact on the Korean economy has been limited so far and Korea’s underlying fundamentals remain resilient. Lee Young Hwa (Economist, Kyobo Securities): Won may rise to as high as 1,165 per dollar in February as risk aversion eases.
Spot is expected to decline further into the year as central banks competitively lower borrowing costs, spurring a decline in the dollar.
Qi Gao (FX strategist, Scotiabank): “The substantial increase in Hubei’s new confirmed cases shocked the market with rising USD/CNH, however, from a different perspective, it suggests Hubei’s hospitals are able to treat all the infection cases properly now, which in fact is a positive sign”.
Buy the won as the spread of the coronavirus in China may peak this month and then slow.
Recommends selling dollar-won at 1,180 with a target of 1,150 and stop of 1,200. Already has short dollar-offshore yuan position, which has a tight correlation with the won.



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