Why South Korea’s won is falling despite a chip export earnings bonanza

{"text":[[{"start":10.95,"text":"South Korea’s currency is trading around multi-decade lows against the dollar despite surging semiconductor exports and a booming stock market, puzzling investors and traders who had bet on the won appreciating."}],[{"start":23.7,"text":"The won has fallen 4 per cent against the dollar this year, placing it among Asia’s worst-performing currencies, ahead of only the Philippine peso, Indian rupee and Indonesian rupiah — countries that are exposed to the Iran war energy shock."}],[{"start":37.95,"text":"But unlike those countries, South Korea is experiencing a record trade surplus on the back of demand for memory chips from US AI companies. In the first quarter, the country ran a current account surplus of $73.8bn, while net profit at chipmakers Samsung Electronics and SK Hynix hit $28.3bn and $22.4bn, respectively."}],[{"start":62.400000000000006,"text":"The earnings bonanza has lifted Samsung shares more than 400 per cent in the past year and SK Hynix shares a whopping 970 per cent, catapulting both companies to a $1tn market capitalisation. These conditions should be ripe for a strengthening currency. Instead, the won is trading at Won1,500 a dollar, its worst level since the 2008-09 financial crisis."}],[{"start":null,"text":"

"}],[{"start":89.05000000000001,"text":"“There is a fundamental puzzle in that one of the economies that most visibly profited from the surging demand in semiconductors still has a currency trading at levels against the dollar typical of levels during a crisis,” said Brad Setser, a senior fellow at the Council on Foreign Relations."}],[{"start":106.10000000000001,"text":"The decline has unnerved policymakers. The Bank of Korea this month said the won appeared “excessively weak relative to economic fundamentals” and warned that authorities would take “decisive action” if necessary."}],[{"start":118.80000000000001,"text":"Analysts have pointed to two explanations for the weak won: the blistering stock rally is forcing global investors to sell holdings to avoid over-concentration, and chipmakers are choosing not to repatriate their earnings."}],[{"start":131.75,"text":"Foreign investors have been net sellers of South Korean equities this year, offloading a record $79bn, according to data from the country’s Financial Supervisory Service."}],[{"start":142.95,"text":"“The equity market in Korea has absolutely ripped,” said Abbas Keshvani, Asia macro strategy director at RBC Capital Markets. “We’re talking about a doubling in the Kospi [index] from October to now.”"}],[{"start":156.7,"text":"While MSCI, which sets the benchmarks used by many portfolio managers, has increased its weights for South Korea, it has not been able to keep up with the Kospi’s rise, leading many managers to sell stock to avoid being overweight on the country or specific companies, said Keshvani."}],[{"start":null,"text":""}],[{"start":173.35,"text":"Chipmakers keeping their revenues in dollars could also be contributing to a weaker won, said analysts. Currencies tend to strengthen when exporters repatriate foreign earnings."}],[{"start":184.04999999999998,"text":"Patrick Han, head of global business at SK Securities, said large South Korean companies such as Samsung and SK Hynix were holding a significant portion of their revenues in foreign currencies to fund increasingly global operations."}],[{"start":198.7,"text":"Sester called the phenomenon “DRam dollars”, likening South Korea’s current account surplus from manufacturing DRam memory chips to petrodollars, in which oil-producing countries reinvest massive dollar earnings back into US assets."}],[{"start":214.2,"text":"Analysts added that exporters were reluctant to convert dollars into won while the currency was weak."}],[{"start":220.64999999999998,"text":"Mitul Kotecha, head of foreign exchange and emerging markets macro strategy at Barclays, said higher energy prices from the Middle East conflict and a weak yen, which is highly correlated with the won, had acted as a further drag on the currency."}],[{"start":235.79999999999998,"text":"However, South Korea’s central bank chief Shin Hyun-song said on Thursday that the gain from semiconductor exports would exceed the economic hit from the Iran war, projecting GDP growth for 2026 would be 0.7 percentage points higher thanks to booming chip sales."}],[{"start":252.49999999999997,"text":"RBC’s Keshvani forecast a rush of repatriation should the won begin to strengthen, which could cause a sharp move upwards against the dollar."}],[{"start":261.4,"text":"Sam Konrad, investment manager in the Asian equity income team at Jupiter Asset Management, said he expected the won and the Taiwan dollar, another chip-exporter currency, to appreciate."}],[{"start":274.09999999999997,"text":"“I don’t know what the catalyst will be or when it will start happening,” he said, “but when you look at the economic fundamentals I do think the currencies should appreciate from here.”"}],[{"start":290.9,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1780030035_2600.mp3"}