Korea Won Vulnerable Near-Term

The underlying economic fundamentals in Korea remain constructive, but the near-term outlook for the currency is less favorable. The dollar is trading to carve out a base near KWR1120 and near-term potential extends toward KRW1140-KRW1150. Contacts report that the central bank intervention is likely to have greater sway as foreign investor demand for won for equity purchases subsides.

Two new features early today initially saw the won strengthen, about those gains have been surrendered in full. First, helped by the unusually cold weather that boosted clothing sales, spending at the country's three largest department stores rose 12.5% in December year-over-year. Recovering domestic demand is joining better foreign demand to help lift the South Korean economy and pave the ground for a rate hike as early as next quarter (currently 2.5%).

The other news item, Bloomberg reports that Posco, Korea's largest steel maker has indicated that Berkshire Hathaway wants to increase its stake--currently (2009 annual statement) 3.95 mln shares or about a 4.5% stake.

Foreign investors began the year buying Korean shares every day of the first week. Last week foreigners were sellers three of 5 days but still small net buyers and given the data for yesterday and today, foreigners have been net sellers three of the past five sessions. It is interesting to note too that volumes levels have really come off too.