Samsung, SK Hynix Dollar Inflows Support Korean Won Amid Fed Rate Hike Fears

The Korean won has seen its value rise despite expectations of further interest rate hikes from the Federal Reserve. One reason for this stability is the large supply of dollars from semiconductor companies such as Samsung Electronics and SK Hynix.

These dollar inflows have been driven by various factors, including the issuance of American depositary receipts (ADRs) by SK Hynix and spending on capital investment, performance bonuses, and shareholder returns by major semiconductor companies. Analysts estimate that Samsung Electronics and SK Hynix will need around 458 trillion won ($331.9 billion) in Korean currency next year, which is roughly double this year's level and equivalent to about 60% of South Korea's annual current-account surplus.

Another factor supporting the won is the high share of overseas sales at semiconductor companies. Lee Jae-hyung, an analyst at Yuanta Securities Korea Co., noted that more than 80% of semiconductor sales are generated abroad, resulting in significant foreign-currency inflows. Companies can also obtain the necessary Korean currency directly from the foreign-exchange market for expanding capital spending.

However, despite these supportive factors, exchange-rate volatility could increase again due to elevated U.S. interest rates, a widening Korea-U.S. rate gap, and exporters' forward dollar selling. Jung Yong-taek, an analyst at IBK Investment & Securities Co., stated that dollar strength may persist if U.S. market interest rates remain around 5%. The won is currently caught between factors supporting its strength and potential weakness.