South Korea’s credit rating outlook was raised by Moody’s Investors Service to positive from stable, boosting demand for the nation’s assets.
“Very strong and improving fiscal fundamentals,” were a key reason for the change, along with resilience in the country’s external financing position, Moody’s said in a statement yesterday. The rating remains at A1, the company’s fifth- highest grade.
The Kospi Index has advanced 11 percent this year as global investors bought $9.6 billion more Korean shares than they sold last quarter, the biggest net inflows since September 2009, exchange data show. The won gained almost 4 percent and bond risk fell for a second consecutive quarter as Asia’s fourth- biggest economy reduced banks’ reliance on dollar funding, a vulnerability during the global financial crisis, and Moody’s said the nation is set for “relatively strong” economic growth.
“This should be positive for foreign investor sentiment toward Korea, and should help to increase net capital inflows,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc.
South Korea’s won extended gains after the statement, strengthening 0.5 percent to 1,126.98 per dollar as of 11:53 a.m. in Seoul, according to data compiled by Bloomberg. Credit- default swaps on South Korea dropped 2 basis points to 117 as of 11:54 a.m. in Seoul, according to Royal Bank of Scotland Group Plc. The contracts tumbled 37.6 basis points last quarter, according to data provider CMA.
North Korea’s regime under Kim Jong Un has yet to cause any significant elevation of risk, the ratings company said.
Geopolitical Risks
“Our sovereign rating is expected to rise in a year this is really a good news when many other countries suffer rating downgrades,” Deputy Finance Minister Choi Jong Ku told reporters in Gwacheon today. “Moody’s outlook change comes after the death of North Korean leader Kim Jong Il, which means they believe that geopolitical risks are under control.”
The KRX Banks Sector Index, comprised of 10 South Korean banks, rallied 2.2 percent as of 12:34 p.m. Seoul time, led by Woori Finance Holdings Co., outpacing a 0.3 percent gain in the benchmark Kospi Index.
Fitch Ratings last November upgraded the outlook for South Korea’s long-term foreign currency rating to “positive” from “stable,” and affirmed the A+ grade. It cited strengthening sovereign creditworthiness with resilient economic growth, moderate public debt, and long-standing fiscal prudence.
South Korea joins Asian nations such as Indonesia and the Philippines that may be poised for upgrades as the region’s growth outpaces the rest of the world. Philippine Finance Secretary Cesar Purisima said March 23 that he’s confident about a rating increase after meeting with officials from Standard & Poor’s. (SPY)
Source: Bloomberg