Strong Support for the Korean Won? Rumors Say Korean Foreign Exchange Authorities "Take Over" $20 billions Repatriated Funds from SK Hynix

According to news from Zhitong Finance APP, informed sources revealed that South Korean foreign exchange authorities purchased around $20 billion in US dollar funds, which were the proceeds repatriated to Korea by SK Hynix (SKHY.US) after completing a $26.5 billion American Depositary Receipt (ADR) listing in the US this July. The source stated that the foreign exchange stabilization fund managed by the Ministry of Strategy and Finance and the Bank of Korea purchased these dollars through over-the-counter (OTC) transactions, specifically during the period when SK Hynix was wiring US dollars back to South Korea.

Although the market was already aware that this South Korean chipmaker would repatriate the dollars it raised on Wall Street, this is the first time media have reported who ultimately bought most of these returned funds. This move differs from the historical foreign exchange intervention approaches of Korean authorities and is also aimed at stabilizing market volatility and supplementing the country's foreign reserves.

South Korea does not officially disclose the specific asset composition or current size of its foreign exchange stabilization fund. The fund is a sovereign pool consisting only of US dollars and Korean won. According to last year's government-approved operation plan, the foreign exchange stabilization fund is sized at 135.1 trillion Korean won ($98.7 billion). However, under the budget proposal published by the Korean government on Tuesday, the fund is projected to be around 106.5 trillion Korean won.

Nevertheless, market participants and macroeconomists have long speculated that, after proactive and sustained foreign exchange intervention by the Bank of Korea to defend the local currency, the proportion of US dollars in the fund has fallen sharply in recent months.

The Korean won has recently rebounded sharply. At the end of June, the won against the US dollar hovered around 1,550 won per dollar—a 17-year low—but in the past two months has risen by more than 12%. At press time, the exchange rate stood at 1,363.34 KRW to the US dollar.

It's worth noting that the unprecedented shareholder return plans announced by SK Hynix and Samsung Electronics, the two memory chip giants, have also been seen as key factors affecting the won's trajectory. If these companies raise funds in the local currency market to support their shareholder return plans, the won may be able to extend its recent rally.

How much demand these shareholder return plans by SK Hynix and Samsung Electronics will bring to the won, and how much of the funds will ultimately be wired out of Korea by overseas shareholders, have become key issues for investor attention. Hanwha Investment & Securities economist Choi Kyu-ho said: “These companies must pay shareholder returns in won, and they can use currently held won or sell US dollars in other markets to buy won. Because the amounts involved are so large, they may ultimately need to sell even more US dollars to raise funds.”

Although these shareholder return plans initially prompted the won’s rise, there is uncertainty as to whether they will become a more lasting catalyst for the currency. Analysts note that, firstly, it remains unclear whether these chip giants will use existing cash reserves to pay shareholder returns or will convert their US dollar assets into won.