As the won-dollar exchange rate falls (won strengthens), an analysis said the large-scale shareholder returns by Samsung Electronics and SK hynix could put additional downward pressure on the rate. If the two companies convert foreign currency they hold to secure funds for share buybacks and dividends, dollar supply in the foreign exchange market could increase.
Brokerages also expect the rate to fall further to around 1,350 won by the end of the year.
◇ Exchange rate down after SK hynix issues U.S. ADR
According to the Seoul foreign exchange market on the 22nd, the won-dollar rate closed the week at 1,386.5 won per dollar, down 6.1 won from the previous day. The rate fell to 1,397 won on the 19th, entering the 1,300-won range for the first time in 11 months since Sept. 29 last year (1,398.7 won), and has dropped further since.
The recent decline is seen as being influenced by last month's inflow of funds from SK hynix's American depositary receipt (ADR) issuance, exporters' dollar selling, and an easing of foreigners' net stock selling.
Market attention is shifting to large-scale shareholder returns by Samsung Electronics and SK hynix. Samsung Electronics held a board meeting the previous day and resolved to implement shareholder returns of about 90 trillion to 110 trillion won this year. It is the largest annual shareholder return by a domestic company on record. It is more than five times the previous record of 20.3 trillion won in 2020.
Samsung Electronics plans to pay about 30 trillion won in cash dividends this year, including the regular third-quarter dividend. Specifics will be finalized at the board meeting at the end of Oct. The remainder will be decided at the board meeting in Jan. next year after this year's results are finalized, including the method and size of cash dividends and share buybacks and cancellations. Total shareholder returns for 2024–2026 are expected to reach 120 trillion to 140 trillion won.
SK hynix also decided on the 19th to buy 40 trillion won worth of its own shares on the market over three months and cancel them all. It plans to use at least 50% of cumulative free cash flow (FCF) for 2025–2027 for shareholder returns.
◇ Companies likely to convert held dollars for record shareholder returns
Brokerages believe that if the two companies proceed with large cash dividends and new share buybacks, increased foreign currency conversion to raise won funds will affect the exchange rate.
Choi Ye-chan, an analyst at Sangsangin Investment & Securities, said, "From the standpoint of corporations that must raise large shareholder return funds in won, substantial conversions are inevitable, and that calculation is being reflected in the rate," adding, "As the outlook for a lower rate brings out exporters' dollar supply, speculative dollar selling is joining in."
Choi said, "We see as a base scenario that Samsung Electronics and SK hynix will secure 50%–60% of the needed won through foreign currency conversion and execute it over six to 12 months," adding, "Even considering foreigners' remittance of dividends back home, a net supply of $15 trillion to $45 trillion won worth of dollars could lower the rate by about 18–77 won."
Previously, the inflow of SK hynix's ADR funds is estimated to have had a significant impact on the recent decline in the rate. Sangsangin Investment & Securities analyzed that during the conversion of $26.5 billion (about 40 trillion won) in ADR funds, the won-dollar rate fell by about 129 won.
Following SK hynix, Samsung Electronics also finalized a shareholder return policy of up to 110 trillion won, leading to expectations of additional downward pressure on the rate. Park Sang-hyun, an analyst at iM Securities, said, "Increased conversion demand from expanded dividends by Samsung Electronics and SK hynix will keep dollar supply dominant," adding, "We expect the won-dollar rate to fall to 1,350 won."
Lee Jeong-hun, an economist at Daishin Securities, also said, "Additional conversion demand will emerge in the process of executing funds for semiconductor corporations' shareholder returns or domestic investment," adding, "With dollar selling dominance likely to continue for the time being, there is room for a further decline to 1,350 won within the year."
◇ "The decline may be short-lived"
However, as much dollar as the size of shareholder returns will not flow into the market as is. Samsung Electronics and SK hynix can use won they hold or cash flow generated domestically, and if foreigners convert dividends received and proceeds from selling treasury shares into dollars and remit them overseas, that could offset corporations' dollar selling effect.
Choi said, "In the short term, downward pressure on the rate is dominant, but some reversal may occur if remittances of dividends back home and conversions of proceeds from selling treasury shares increase."
Meanwhile, a stronger won could create a favorable environment for foreigners to return to the domestic stock market. As the won strengthens, concerns about exchange losses for foreigners holding domestic stocks ease. Lower import prices are also expected to help relieve inflation and interest rate pressures.