Net selling in first 9 months 2.6 times last year's same period

Record current-account surplus drives 56.1% jump in dollar sales

Bargain-hunting demand grows as exchange rate falls

Rate climbs after US midterms; upward, downward pressures balanced

Screens at Hana Bank's dealing room in Jung-gu, Seoul, display the Kospi and other market data on Friday. The Kospi triggered a circuit breaker after tumbling more than 8 percent in early trading that day. [Yonhap]
Screens at Hana Bank's dealing room in Jung-gu, Seoul, display the Kospi and other market data on Friday. The Kospi triggered a circuit breaker after tumbling more than 8 percent in early trading that day. [Yonhap]

South Korean private companies sold nearly twice as many dollars on the foreign exchange market in the first nine months of this year as they did in all of last year, data show, as the won strengthened for four consecutive months after peaking in June — driven largely by semiconductor exporters converting record earnings into local currency.

However, the won-dollar exchange rate has risen for three consecutive trading days since the US midterm elections, as dampened investor sentiment toward AI-related assets boosted demand for safe-haven assets such as the dollar. With the current-account surplus expected to remain large, analysts see upward and downward pressures on the exchange rate remaining evenly matched for some time.

According to data on foreign exchange transactions by non-financial private companies that People Power Party lawmaker Lee Jong-wook, a member of the National Assembly's Finance and Economy Planning Committee, obtained from the Bank of Korea, non-financial private companies posted net dollar sales — the difference between dollars sold and dollars bought, covering both spot and forward transactions — of $286.57 billion in the first three quarters of this year.

That figure was 2.6 times the $109.32 billion recorded in the same period last year, and 1.9 times the full-year net selling total of $149.13 billion for last year. Non-financial private companies refers to general businesses excluding financial institutions and state-owned enterprises.

Both gross sales and gross purchases rose, but sales grew at a faster pace. Cumulative gross dollar sales through the third quarter reached $736 billion, up 56.1 percent from $471.55 billion in the same period last year, already surpassing last year's full-year gross sales figure of $646.44 billion by 13.9 percent in just nine months. Gross purchases came to $449.43 billion, up 24.1 percent from the same period last year and equivalent to about 90 percent of last year's full-year total of $497.31 billion.

The surge in dollar selling was driven primarily by a record-breaking current-account surplus that rapidly swelled companies' dollar holdings. The current-account surplus in September reached $61.46 billion, surpassing $60 billion for the first time in history. The cumulative surplus for January through September hit $340.66 billion, more than four times the $83.89 billion recorded in the same period last year. Government encouragement to convert foreign currency, combined with corporate demand to convert dollars into won for tax payments and domestic investment, further increased the number of companies exchanging dollars for won.

"Through the second quarter, foreign investors' equity selling, portfolio rebalancing and forward purchases related to currency hedging had not subsided — but once they did, the effect of corporate dollar selling driven by the current-account surplus became clearly visible from the third quarter onward," a Bank of Korea official said.

On a quarterly basis, however, net selling shrank in the third quarter, as purchases rose 11.2 percent from the previous quarter, outpacing the 2.8 percent increase in sales. This suggests that while companies continued to sell dollars, demand for dollars grew at an even faster rate. "As the exchange rate fell, there was also a significant wave of bargain-buying, mainly from importers," the official said.

With dollars in abundant supply, demand is also growing among companies to deposit unconverted dollars. Corporate dollar-denominated deposits stood at $117.87 billion at the end of September, setting a record high for the fifth consecutive month. "Importers buy dollars in advance when the rate is low and park them in foreign-currency deposits for future payments, while some exporters, seeing the rate fall below where they used to sell, hold back on converting and deposit instead," the official said. "When you look at exporters and importers separately, this pattern becomes clear."

The won-dollar exchange rate tumbled sharply in the third quarter. After averaging 1,528 won in June (based on weekly closing prices), the rate fell for four consecutive months — to 1,488.9 won in July, 1,404.4 won in August, 1,358.8 won in September and 1,336.4 won in October.

Market participants broadly expect corporate dollar selling to continue, putting gradual downward pressure on the exchange rate through year-end. A recent decline in international oil prices is also seen as adding to that downward pressure.

Foreign exchange authorities also see room for the rate to fall further. Bank of Korea Governor Shin Hyun-song said at a monetary policy press briefing last month that "in terms of the real effective exchange rate, the won remains weaker than in previous years."

However, upward pressure on the exchange rate is also expected to be considerable, as risk-averse sentiment has strengthened since the US midterm elections amid concerns over potential data center regulations, driving up demand for safe-haven assets such as the dollar.

The exchange rate rose for three consecutive trading days from Tuesday, when the US midterms began, at 1,341 won, to Friday at 1,356.6 won. On Friday in particular, the rate jumped 14.5 won from the previous session as South Korean stocks tumbled on concerns — centered on the Democratic Party — over potential AI data center regulations.


kimstar@heraldcorp.com