Hotfooting it

15 September 2011 By Wayne Arnold

A stampede for safety has sent many of Asia’s currencies diving and the cost of insuring its debt soaring. The retreat says less about Asia’s financial health than Europe’s. It’s a reminder that hot money is most dangerous not when it pours in, but when it pulls out.

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South Korea’s won fell Sept. 15 to its lowest against the U.S. dollar since late March, a day after suffering its worst decline in 15 months. The won lost 3.5 percent of its value in only two days. The cost of insuring South Korean government debt jumped Sept. 15 to their highest since May 2010, with spreads on 5-year sovereign credit default swaps climbing to as high as 156 basis points.

The iTraxx Asia ex-Japan index of regional credit default swap spreads rose Sept. 14 to nearly 177, slightly under the 179 level reached Sept. 12, its highest since July, 2009.

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