Won Strengthens on SK Hynix Dollar Sales as South Korea Urges Exporters to Convert More FX

The won is rebounding sharply as companies step up dollar sales after SK Hynix's US stock listing. South Korean foreign-exchange authorities are also urging exporters to bring home dollars held overseas and convert more of them into won.

Bloomberg reported on July 26 that SK Hynix sold part of its dollar holdings after raising $26.5 billion through its US listing. The large dollar supply has helped lift the won and appears to be prompting other exporters to sell dollars as well.

Heo Chang, vice finance minister at the Ministry of Economy and Finance, met exporters last week and asked them to increase the share of export proceeds converted into won. He also requested that funds held abroad be repatriated.

"The move that started with SK Hynix is spreading into broader corporate dollar selling," Stephen Lee, an economist at Meritz Securities, said. With the won continuing to strengthen alongside conversions of ADR fundraising proceeds, companies that had delayed exchanging foreign-currency earnings are now selling dollars too.

Hanwha Ocean sold about $2 billion of dollar futures earlier this month and indicated more sales could follow. Bank of Korea data showed domestic exporters and importers were net sellers of $17.4 billion in dollar futures in the second quarter, the largest amount in 18 years.

Foreign-exchange authorities have also asked major companies including Samsung Electronics, Hyundai Motor, HD Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries to repatriate overseas funds and expand currency hedging.

As corporate dollar sales increased, the won has risen about 6% against the dollar this month. After ranking as the weakest among major Asian currencies in the first half, the won has posted Asia's biggest gain in July. The advance continued even as foreign investors were net sellers of about 13.6 trillion won ($9.8 billion) on the benchmark stock market over the same period.

Still, pressure on the won has not fully disappeared. South Korea's stock market remains volatile, and the country is also set to carry out a $350 billion investment plan in the US.

Moon Ji-sung, another vice finance minister at the Ministry of Economy and Finance, said corporate sales of dollar futures will likely increase further in the third quarter. He described dollar supply from companies, including conversions of ADR fundraising proceeds, as the start of a structural shift in foreign-exchange market supply and demand rather than a temporary phenomenon. "This is not a passing shower ending," he said. "It is the start of monsoon season."