The won-dollar exchange rate fell 12% over two months since July, moving from the 1,550-won range to the 1,370-won range. The situation has reversed from just a few months ago, when there were concerns about excessive won weakness. It reflects a weaker U.S. dollar and dollar conversions by exporting corporations.
If this happens, Samsung Electronics and SK hynix could see their won-converted sales decline. As the two companies' impact on the economy has grown, some said heightened exchange-rate volatility could become a risk factor for the macroeconomy as well as the stock market.
◇ When the exchange rate falls, exporting corporations see a decline in won-denominated sales
There is a view that a falling exchange rate typically acts as a negative for exporting corporations. The analysis is that the dollar-based price of export products rises, weakening price competitiveness. In a 2024 report, the Korea International Trade Association estimated that a 10% drop in the won-dollar exchange rate reduces export volume by 1.43%.
Also, when the exchange rate falls, the won-based sales of exporting corporations decline. For example, if Samsung Electronics earns $100 million from exports, its won-based export sales are 200 billion won at an exchange rate of 2,000 won, but they shrink to 100 billion won at a rate of 1,000 won. If it raises selling prices to make up for losses from converting to won, order volumes themselves could decrease.
The Ministry of Economy and Finance is said to be internally analyzing risks that a lower exchange rate could pose to the broader economy, including corporate earnings. That is because Samsung Electronics and SK hynix have such an outsized effect on the macroeconomy. Thanks to a surge in semiconductor exports, the current account surplus in the first half was $191.01 billion, 1.5 times the full-year surplus last year.
On the 27th, the Bank of Korea raised this year's economic growth outlook to 3.3% from 2.6%, citing strong semiconductor exports. It also said that if semiconductor exports increase more than expected, this year's growth could rise to 3.5%, while if they underperform, it could fall to 3.2%. It is no exaggeration to say Korea's economic growth depends on major semiconductor companies.
Samsung Electronics and SK hynix account for more than half of KOSPI's market capitalization, so their impact on the asset market is also large. If the two companies report a decline in won-based sales, it could lead to stock price drops and shock Korea's stock market overall. In that case, there could be spillover effects on private consumption as well.
◇ Lower prices for imported raw materials are a plus... "A judgment on gains and losses requires considering exchange rates of competitor countries"
Still, a falling exchange rate is not only a negative for Samsung Electronics and SK hynix. That is because it also lowers the prices of imported raw materials used in semiconductor production by Samsung Electronics and SK hynix. A Ministry of Economy and Finance official also said, "Large corporations like Samsung Electronics and SK hynix have well-prepared hedging strategies, so we judge that exchange-rate movements will not immediately become a major risk."
The official added, "More than movements in Korea's exchange rate, we need to look at the dollar exchange rates of competing export countries," and said, "If the yuan has appreciated more than the won against the dollar while competing with China, it could actually be favorable for Korean corporations."