Moody's raises S.Korea rating outlook to positive

SEOUL :Moody's rating agency on Monday raised the outlook on South Korea's sovereign credit rating to positive from stable, citing strong and improving fiscal positions and an easing external vulnerability of the banking sector.

Moody's Investors Service currently rates South Korea at A1, the fifth highest and equivalent to an A-plus rating from its two main rivals, Standard & Poor's Ratings and Fitch Ratings. It last raised the country's rating in April 2010.

Analysts said the outlook change was a vote of confidence to the way Asia's fourth-largest economy is managed and would improve global appetite for South Korean assets, including the won and stocks.

"The ratings upgrade is a vote of confidence reflecting solid fundamentals and while it is not the kind of news that has caught anyone by surprise, it sets the won on a solid base," said So Jae-yong, economist at Hana Daetoo Securities.

The won briefly extended gains to hit a near two-week high of 1,126.8 per dollar, although it retreated slightly. Bond futures and stock prices showed a muted reaction.

"Its fiscal fundamentals have withstood the global financial crisis, as well as the ongoing euro-zone crisis and the drag in global growth," Moody's said in a statement. "The government budget swiftly bounced back into surplus in 2010 and remained in the black in 2011."

The ratings agency also cited the resilience in South Korea's external financing position and the outlook for relatively strong economic growth over the medium term as factors behind its decision.

On the flip side, Moody's said rising public-sector debt and high household debt were the main concerns for it in terms of South Korea's credit quality. But it said North Korea-related risks were not a serious drag.

"Our assessment is that, fundamentally, geopolitical risks have not changed under the new, dynastic leadership in Pyongyang," it said. \

"Such risks are counterbalanced by the strong deterrence provided by Seoul's robust alliance with Washington and also by the shared interests among regional powers for stability on the peninsula," it added.