Won has further to rise this year, says SERI

The Korean currency, which already broke the 1,100 won barrier to the U.S. dollar, is expected to appreciate further until the end of the year, which will increase worries among Korean exporters. According to Samsung Economic Research Institute, the won’s value will appreciate to 1,020 won to the dollar by the end of 2011. The won is also likely to rise to around 1,150 won to 100 Japanese yen. The Korean won, whose value to the dollar fell to 1,135 in mid-March, has recently been getting stronger at a rapid pace. This month, it broke the 1,100 won barrier and appreciated to 1,080 won. Many exporters considered 1,100 won as a favorable level. Hyundai Motor Group is one company that could be affected by a stronger won since exports account for 60 percent to 70 percent of sales. The automaker last year based its current strategy on a 1,100 won level. Whenever there is a 10 won rise to the dollar, the automaker estimates that it loses 200 billion won ($185 million) in revenue. Electronics companies also see a stronger won as a negative since exports also make up a large part of total sales. The market consensus is that the won could appreciate to 1,050 won to the dollar. Korea Development Bank in a recent report said the operating profits of automakers, semiconductor manufacturers and shipbuilders will fall between 1.5 and 6 percent if the won’s value rises to 1,000 won to the dollar. SERI believes there are several factors behind the stronger won. First, the value of the dollar and yen has been falling because the U.S. and Japanese governments have maintained a loose monetary policy. In addition, investors are shifting from seeking safe assets, such as the dollar and yen, as anxieties caused by the turmoil in the Middle East have subsided. Foreign capital has been flowing into Korea’s financial markets, while the nation has seen its current account surplus increase. Lee Jae-man, an analyst at Tong Yang Securities, said the government will likely allow the value of won to increase as a means to curb inflation caused by higher raw material prices. Lee said recent speculation that the U,S, will end its quantitative easing policy is unlikely, which will help boost the won. “Previously, the government might have intervened in the foreign exchange markets to keep the competitive edge of export goods with a weak won,” said Jeong Young-sik, a SERI analyst. LG Economic Research Institute estimates consumer prices in 2011 will grow 3.8 percent, above the government target of 3 percent, while it believes economic growth will be 4.1 percent. Source : http://joongangdaily.joins.com/article/view.asp?aid=2934578