SK Hynix's Nasdaq Listing Expected to Ease Won-Dollar Exchange Rate

SK Hynix's listing of American Depositary Receipts (ADRs) on Nasdaq is anticipated to lead to a significant influx of dollars, putting short-term downward pressure on the won-dollar exchange rate. This is due to the expected improvement in foreign exchange supply as global investment flows into the domestic currency market.

However, as the U.S. government is urging both Samsung Electronics and SK Hynix to expand local semiconductor production, there are concerns that the dollars raised may be reinvested in U.S. operations, potentially leading to long-term dollar outflows. While the current dollar influx may provide temporary stability to the exchange rate, analysts suggest it remains to be seen whether this will result in a structural strengthening of the won.

According to the Seoul foreign exchange market, the closing price of the won-dollar exchange rate at 2 a.m. on July 10 was 1,498.50 won. This marks a decrease of approximately 31.5 won from the closing price of 1,530.0 won on July 3.

Market analysts attribute the decline in the exchange rate to the anticipation of a large dollar inflow following SK Hynix's ADR listing. On July 10, SK Hynix raised $26.5 billion through the issuance of ADRs on Nasdaq, with the funds expected to be settled by July 14.

Reports indicate that demand for the offering exceeded seven times the amount available, suggesting that if foreign institutional investors continue to buy, it could serve as a sustained source of foreign currency inflow. The market anticipates that up to $1 billion in new dollar liquidity could be supplied daily, which may encourage export companies and heavy industries to sell dollars proactively, further increasing downward pressure on the exchange rate.

Notably, the scale of this dollar inflow is considered comparable to a currency swap. During a $60 billion currency swap agreement between the Bank of Korea and the U.S. Federal Reserve in 2020, $19.872 billion was supplied to the domestic market, which is less than the amount expected from SK Hynix's ADR issuance. At that time, the won-dollar exchange rate fell from 1,285.7 won just before the swap announcement to 1,246.5 won the following day.

There are also expectations that the SK Hynix ADR listing will not be a one-time event. If other domestic companies, such as Samsung Electronics, follow suit with their own ADR issuances, it could lead to increased foreign capital inflows, exerting additional downward pressure on the won-dollar exchange rate.

Jo Yong-gu, a researcher at Shin Young Securities, stated, "Considering the inflow of SK Hynix ADR conversion amounts and the easing of foreign investors' rebalancing in the domestic stock market, the exchange rate is likely to trend lower than its current level."

However, it remains uncertain whether the short-term increase in dollar supply will lead to a structural strengthening of the won. As domestic semiconductor companies ramp up investments and expand production facilities in the U.S., the demand for dollars due to foreign direct investment is also expected to rise.

The U.S. government has publicly called for increased local investments from South Korean semiconductor firms. On July 9, the day before SK Hynix's ADR listing, U.S. Secretary of Commerce Gina Raimondo emphasized the desire to bring Samsung Electronics and SK Hynix to the U.S. to build factories, urging for an expansion of memory production in the country.

In fact, the increase in investments by companies in the U.S. is already impacting the foreign exchange market. There is a growing tendency for companies to hold foreign currency instead of converting it, as they seek to secure dollars for construction and equipment investments in the U.S. According to the Bank of Korea, as of the end of May, the balance of foreign currency deposits held by residents at foreign exchange banks was $112.25 billion, an increase of $1.57 billion from the previous month. This marks a continuation of the upward trend in foreign currency deposits that began in April.

Analysts suggest that if the dollars flowing in from the ADR issuance are used for U.S. factory construction, equipment procurement, and local operational funds, the net dollar supply effect in the foreign exchange market may be limited. The interplay between short-term dollar inflows and long-term investment expansion in the U.S. could constrain the extent of the exchange rate decline.

The Bank of Korea noted, "While overseas investment income can be reinvested locally, an increase in investment income does not necessarily mean an immediate expansion of foreign currency inflows into the domestic foreign exchange market. Although the proportion of reinvested overseas direct investment income has somewhat decreased recently, there is a possibility that it could increase again as the scale of overseas investments expands."