SK Hynix's US ADR listing on July 10 is drawing attention as a potential factor to stabilize the KRW/USD exchange rate, which has remained stubbornly in the 1500s range for nearly two months. The listing is expected to bring approximately 43 trillion KRW worth of dollars into Korea. The exchange rate has stayed above 1500 KRW per dollar since May 18, reaching 1559.20 intraday earlier this month, despite favorable factors including the end of the US-Iran conflict and June exports surpassing $100 billion (153 trillion KRW). Market analysts attribute the persistent won weakness primarily to foreign capital outflows from Korean stock markets, with foreign investors net selling over 150 trillion KRW in KOSPI and KOSDAQ from the start of the year to present.
Exchange Rate Maintains 1500s Range for Two Months Despite Favorable Factors
According to the Seoul foreign exchange market on July 7, the KRW/USD exchange rate traded around 1530 KRW. The rate has remained in the 1500s range for nearly two months since exceeding 1500 KRW on May 18 (closing basis at 3:30 PM). It reached 1559.20 intraday earlier this month.
The rate has declined to around 1530 KRW following multiple verbal interventions and fund injections by foreign exchange authorities. However, many experts suggest the exchange rate ceiling should be set at 1600 KRW for the third quarter.
Jung Yong-taek, a researcher at IBK Investment Securities, stated: "The current won weakness is not easily explained by existing exchange rate theories. What can best explain it is stock fund flows — the sharp increase in capital outflows since the second half of last year aligns with the KRW/USD exchange rate movements."
The dollar index rose from 97 at the start of the year to 101 recently, creating a strong dollar environment that has contributed to won weakness. However, while the index increased by approximately 3%, the won's value against the dollar declined by approximately 8%, indicating the index alone does not fully explain the situation.
Wi Jae-hyun, a researcher at Kyobo Securities, noted: "The factor driving the exchange rate increase appears to be rebalancing selling by overseas passive funds. Looking at relative returns in global stock markets, rebalancing selling is likely to continue for the time being. If rebalancing selling continues in the second half, there are few notable factors to cap the upside."
Government Mega-Projects and SK Hynix ADR Expected to Support Exchange Rate Stability
The securities industry views large-scale domestic investments centered on semiconductor companies through recently announced government mega-projects and future inflows of export proceeds by exporters as long-term exchange rate stabilization factors.
However, capital market experts agree that short-term risk mitigation factors are needed, as the KRW/USD exchange rate ceiling may open up to 1600 KRW in the third quarter.
The securities industry is placing expectations on SK Hynix's US ADR listing on July 10 for exchange rate stabilization. The inflow of dollars raised in the US into Korea could help stabilize the exchange rate. An inflow of 43 trillion KRW is possible, and the government is reportedly considering phased currency exchange to prepare for exchange rate volatility when large-scale funds are released domestically. The impact on both stocks and the KRW/USD exchange rate is expected to be significant.
One securities industry official stated: "The yen, which has recently shown synchronization with the won, has strengthened to around 161 yen per dollar due to Japanese government market intervention, which could serve as a relatively positive factor for short-term defense of the KRW/USD exchange rate. The transition to a 24-hour trading system in the Seoul foreign exchange market starting July 6 is also drawing attention for its potential positive impact on exchange rate stability."
FAQ
Q: What is the expected impact of SK Hynix's ADR listing on the KRW/USD exchange rate?
A: SK Hynix's ADR listing on July 10 is expected to bring approximately 43 trillion KRW worth of dollars into Korea. The government is considering phased currency exchange to manage potential exchange rate volatility from this large-scale fund inflow.
Q: Why has the KRW/USD exchange rate remained in the 1500s range despite favorable economic factors?
A: Market analysts attribute the persistent won weakness primarily to foreign capital outflows from Korean stock markets. Foreign investors net sold over 150 trillion KRW in KOSPI and KOSDAQ from the start of the year to present. Experts suggest rebalancing selling by overseas passive funds is likely to continue.
