China’s Tariff Response May Add to Pressure on Won, Korea Bonds

South Korea’s won and bonds may be dragged down if China significantly weakens its currency in response to US tariffs, given deep bilateral trade and competitive pressure.

The won is more sensitive to yuan weakness than other emerging Asian currencies like the rupiah, Bloomberg calculations show. Since 2007, the yuan has had an outsized drop — more than two standard deviations lower than the weekly mean change — on some 30 occasions, and the won then fell by an average of 1.05%, according to a Bloomberg analysis of data going back nearly two decades.

As the Sino-US trade war escalates, ...