A single corporate move by SK hynix (SKHY.US) has sent ripples through foreign exchange markets, with the chipmaker's record-breaking US listing fueling a sharp rebound in the South Korean won. This has prompted authorities to intensify calls for exporters to repatriate overseas funds, marking a strategic shift in currency management.
Despite foreign investors selling off Korean stocks, the won surged approximately 6% against the US dollar in July, making it the best-performing currency in Asia. The catalyst was SK hynix raising $26.5 billion through its American Depositary Receipt (ADR) offering, with market observers noting significant dollar selling by the company directly driving the won's subsequent strength.
Last week, South Korea's First Vice Finance Minister Heo Chang-uk urged exporters at a meeting to convert more of their earnings into won and repatriate funds held overseas. The massive dollar sell-off by SK hynix demonstrated that the capital operations of a single enterprise can reshape the currency landscape, solidifying the regulator's approach: accelerating months-long efforts to stabilize the exchange rate by leveraging the power of the country's top export companies, rather than relying solely on foreign exchange reserves.
This strategy bets that cross-border corporate fund flows can achieve what direct FX intervention often cannot, while avoiding its high costs. "The dollar selling by Hynix has created a chain reaction, evolving into a broader wave of corporate dollar liquidation," said Lee Stephen, an economist at Meritz Securities. "Beyond the won conversion linked to the company's ADR proceeds, the won's sustained strength is also prompting other companies that had previously delayed converting their foreign currency earnings to start selling dollars."
Hanwha Ocean sold approximately $2 billion worth of dollar forward contracts in early July, and the shipbuilder has signaled it will increase dollar selling in the future. Data from the Bank of Korea shows that net sales of dollar forward contracts by South Korean importers and exporters hit $17.4 billion in the second quarter, the highest level in 18 years. Companies such as Samsung Electronics, Hyundai Motor, HD Korea Shipbuilding & Offshore Engineering, and Samsung Heavy Industries have also been asked by authorities to repatriate funds and expand their foreign exchange hedging operations.
The won rebounded about 6% against the dollar in July, after hovering near its lowest point since 2009 earlier in the year. While it was the worst-performing currency in the region during the first half, July saw it become Asia's top performer. This strength materialized even as foreign investors sold about 13.6 trillion won ($9.3 billion) worth of stocks on the KOSPI index, driven by concerns over the sustainability of the AI spending boom.
However, depreciation pressures on the won have not completely dissipated: the Korean stock market remains volatile, and the country is advancing its $350 billion commitment to US investment. Ultimately, the decision to continue selling dollars rests with the companies themselves. Reports indicate that SK hynix and Samsung Electronics are set to announce their latest earnings. The market expects SK hynix's second-quarter operating profit to reach 64.09 trillion won, a nearly 600% year-on-year increase, potentially setting a new record. Samsung Electronics previously reported preliminary results, showing second-quarter operating profit of 89.4 trillion won.
Additionally, Samsung Electronics and the SK Group have signed semiconductor deals worth $950 billion with US companies. SK hynix will provide $750 billion worth of long-term memory chips to an American firm, while Samsung Electronics will supply $200 billion worth of chips to Broadcom. South Korean Presidential Policy Director Kim Yong-bum acknowledged that these orders include "capacity from fabs that have not yet been built," meaning Samsung and SK hynix must expand production capacity at an unprecedented pace in the coming years.
For now, South Korean officials are optimistic about the won's current strength. Vice Finance Minister Koo Yun-cheol stated that corporate dollar forward selling is expected to expand further in the third quarter. He suggested that ADR proceeds and similar fund flows represent the beginning of a shift in supply-demand dynamics, not just a temporary boost. "This is not a fleeting shower," Koo added. "It marks the official start of the rainy season."
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