The South Korean won, Asia’s worst-performing currency this quarter, will soon have a new item added to its long list of troubles — the dividend payment season in April.
(Bloomberg) — The South Korean won, Asia’s worst-performing currency this quarter, will soon have a new item added to its long list of troubles — the dividend payment season in April.
This month normally sees overseas investors take dividends out of the country. Expected handouts to foreign investors at the top 10 Korean companies with the largest dividends allotted to global funds are at least 4.59 trillion won ($3.53 billion), according to Bloomberg’s calculations based on company filings and data from the Korea Exchange.
The conversion of these dividends into foreign currencies is set to weigh on the won, which is already reeling from a slump in demand for semi-conductors and smartphones, heavily affecting the nation’s exports and growth rate. Banking sector instability and geopolitical tensions on the Korean Peninsula have also exposed it to sudden changes in risk appetite.
“In addition to the seasonal flow, the recent banking turmoil left risk sentiment fragile and the risk-sensitive won will be vulnerable” says Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. The currency could retest support around its 1,329.10 March 10 low against the dollar in April, he said. It closed at 1,301.59 on Friday.
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Any relief provided by the Bank of Korea is fading fast with the central bank indicating it’s at or very near a terminal rate after it paused increases in February for the first time in a year. However, with board members leaving the door open to another 25 basis point hike, investors will be monitoring inflation data on April 4.
The dollar-won bounced off support from its 50-day moving average in March and bullishly snapped its two-week losing streak in an ominous sign for the currency. Dangers also await from the dollar side of the foreign exchange equation. Robust US employment data later this week could strengthen the greenback, which may spur investors to dial back on expectations for Federal Reserve rate cuts this year.
If the dollar keeps weakening, it may offset the won’s projected drop, but even so, “there is no reason to buy the won now given the imminent risk of a slowing economy, sluggish exports and consumption,” according to An Young-jin, an economist at SK Securities Co. in Seoul, South Korea.
Here are the key Asian economic data due this week:
- Monday, April 3: Japan 1Q Tankan survey, China Caixin manufacturing PMI, Australia home loans, New Zealand house prices, Indonesia CPI, Thailand business confidence
- Tuesday, April 4: RBA policy decision, South Korea CPI
- Wednesday, April 5: RBNZ policy decision, RBA Gov. Lowe speaks, Philippines CPI, Singapore retail sales, Thailand CPI
- Thursday, April 6: RBI policy decision, Australia trade balance and RBA financial stability review, China Caixin services PMI
- Friday, April 7: Japan labor cash earnings, South Korea BOP current account balance
–With assistance from Daedo Kim.
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