Bets by a number of global hedge funds on further falls in the value of the won are behind the South Korean currency’s continuing fall in value, according to a report by Korea Economic Daily.
The report cites foreign exchange dealers as claiming that a continued decline in the value of the currency, which recently hit a 13-and-a-half year low is attributable to bets by multiple global funds, including the the world’s largest hedge fund Bridgewater Associates. The funds have reportedly sold the won in offshore non-deliverable forward (NDF) markets, in which they would buy it back in the coming months at pre-agreed rates.
While NDF markets are usually used to hedge against foreign investors’ exposure to the won after they convert dollars into won to invest in South Korea, speculative NDF trading is on the up, something that has spurred the South Korean government to act. The country’s finance ministry is reportedly working on new measures with a view to opening the door of the domestic foreign exchange market to overseas financial institutions. Currently, only domestic banks and securities are allowed to participate in the Korean forex market.
The country however, will continue to prevent foreign investors from engaging in spot trades in offshore currency markets.
The won, the 10th most widely traded global currency, has been on a downward slide since the global financial crisis and has been the worst performer among emerging Asian currencies so far this year.
