Samsung, SK hynix shareholder returns seen driving further won strength

Samsung Electronics and SK hynix’s combined shareholder return plans worth more than 150 trillion won ($108 billion) could trigger additional dollar selling and put further downward pressure on the won-dollar exchange rate, according to market experts on Wednesday.

NH Investment & Securities projected that the won could strengthen to the 1,340-1,350 per dollar range, citing the chipmakers’ large-scale shareholder return plans alongside broader weakness in the U.S. dollar.

The won-dollar exchange rate recently fell to the high 1,300-won range for the first time in 11 months, reversing sharply from just two months earlier, when it surged to 1,560 won in June, nearing the 1,600-won level. On Wednesday, the won strengthened 1.3 won to close at 1,384.8 per dollar in onshore trading.

SK hynix and Samsung Electronics have announced massive shareholder return programs worth 40 trillion won and 90 trillion to 110 trillion won, respectively, bringing the combined total to as much as 150 trillion won.

Converting dollar holdings into won to fund dividends and share buybacks generally increases the supply of dollars in the foreign exchange market, putting downward pressure on the exchange rate.

“A full conversion of these funds would have an impact comparable to the dollar conversion triggered by SK hynix’s recent American depositary receipt (ADR) offering on the Nasdaq,” NH Investment & Securities analyst Kwon Ah-min said.

Nevertheless, Kwon noted that the actual market impact will likely be limited to 40-50 percent of the total commitment, as the companies can first tap their domestic won holdings, while foreign investors may buy dollars to repatriate dividend proceeds, potentially offsetting some of the won’s appreciation.

“Consequently, the won-dollar rate could fall another 40-50 won, with the first support level seen at around 1,340-1,350 won per dollar,” Kwon said.

Experts attribute the recent rapid stabilization of the won-dollar rate to a combination of several factors.

Exporters have begun selling their dollar holdings after keeping more funds in bank accounts, a trend that was accelerated by SK hynix’s ADR issuance in July.

As about 40 trillion won worth of ADRs were absorbed by the market, the exchange rate fell from the 1,560-won range to the 1,400-won range, providing a major catalyst for the foreign exchange market. This has prompted major exporters to convert their export proceeds into won rather than hold dollars.

At the same time, the Bank of Korea bolstered the won by raising its benchmark interest rate in July. The decision narrowed the interest rate gap between the U.S. and Korea, while the central bank’s signals that it remains open to further tightening reshaped market expectations.

Adding to the domestic dollar supply pressure, the U.S. dollar has come under renewed pressure amid signs of slowing economic momentum. A series of weaker-than-expected U.S. inflation, employment and retail sales data has dampened expectations for further Federal Reserve rate hikes, keeping the dollar under pressure against major currencies.

“The won-dollar rate is now being driven more by expectations for the Fed’s monetary policy and broader dollar trends than by domestic dollar supply,” Hanwha Investment & Securities analyst Choi Kyu-ho said, adding that a sustained rise in the exchange rate is unlikely unless U.S. economic indicators show a clear improvement.