The Hidden Secret Behind Won Strength (Park Jong-hoon’s Knowledge in One Shot)

The won strengthened despite the recent sharp decline in the KOSPI not because of foreign buying, but because the dollars Samsung Electronics and SK hynix converted into won for share buybacks, compensation, dividends, and tax payments exceeded foreigners’ demand for dollars. Given the two companies’ large market capitalization weights, their share buybacks provide downside support for the KOSPI, but they are not a complete bulwark against adverse external developments. Once the buybacks end, the index will follow earnings, industry conditions, interest rates, and the broader macroeconomic environment. Other corporations are currently buying faster than needed to meet the pledged schedule, so Samsung Electronics could exhaust its available funds around October (month 10) 6 and SK hynix around October (month 10) 15. The buying pace and remaining volume therefore need to be checked. In terms of exchange rates, demand for won related to share buybacks, dividends, taxes on performance bonuses, and other items could continue through March (month 3) next year. However, because the market may price this in ahead of time and because of the structure of dollar outflows, continued won strength cannot be taken as automatic. The key indicators to monitor are daily net buying by other corporations, residents’ foreign currency deposits, and whether foreigners switch to net buying of Samsung Electronics and SK hynix.