Following Kookmin Pension's expansion of foreign stock investments at a faster rate than individual investors this year, an analysis suggests that the upward pressure on exchange rates is increasing in a complex manner as companies have significantly increased their dollar holdings. Foreign stock purchases by Koreans are mentioned as the main culprit of the high exchange rate, but if you look at actual supply and demand, the “triple factors” that simultaneously increased the demand for dollars by individuals, governments, and companies overlapped.
According to Bank of Korea's balance of payments statistics on the 30th, the foreign stock investment of the “General Government (Kookmin Pension)” in the 1st to 3rd quarter of this year was 24.514 billion dollars (about 36 trillion won), a 92% increase compared to 12.785 billion dollars (about 19 trillion won) in the same period last year. Investments in foreign stocks of “non-financial companies, etc.,” which are usually classified as individuals, increased 74% from 9.561 billion dollars (about 14 trillion won) to 16.625 billion dollars (about 24 trillion won) during the same period.
Even in terms of simple amounts, Kookmin Pension showed a much more aggressive buying trend than individuals. The share of national pensions in the total foreign investment of Koreans was calculated as 34%, and individuals were 23%. The influence on the foreign exchange market also means that the National Pension Fund is bound to be greater.
However, it is also true that the buying trend of individual investors has been extremely steep in the last two months. According to the Korea Depository Service, individuals made net purchases of 12.337 billion dollars (approximately 18 trillion won) over two months from last month to this month. Taken together simply, the amount of individual foreign investment this year was 28.962 billion dollars (about 43 trillion won), which is three times the level of last year. It is estimated that the shift of investment funds from domestic real estate to foreign stocks was affected by the rapid increase in credit loans after the 10·15 real estate measures.
This overlaps with the expansion of companies' dollar deposit holdings, and demand for dollars has further increased structurally. According to commercial banks, as of the 27th, corporate dollar deposit balances of the five major banks (KB Kookmin, Shinhan, Woori, and NH Nonghyup) were 53.744 billion dollars (about 79 trillion won), a 21% increase compared to 44.325 billion dollars (about 65 trillion won) at the end of last month. This is the biggest increase this year.
Dollar deposits are structured to earn money by exchanging won into dollars, so usually when the exchange rate rises, the balance decreases due to the realization of arbitrage. Nevertheless, the fact that companies bought more dollars during the period of a sharp rise in exchange rates was solved as a result of the strengthening of the trend of focusing on securing foreign currency liquidity rather than short-term exchange gains due to the expansion of investment in the US, uncertainty in geopolitics and policies, and changes in the foreign exchange environment after the launch of the Trump administration.
Individual dollar deposits also continued to increase. As of the 27th, personal dollar deposit balances were 12.253 billion dollars (about 18 trillion won), increasing for 4 consecutive months since August. At one of the top five banks, individual dollar deposits surpassed 3 billion dollars (about 4 trillion won) and reached the highest level since January 2022. The total dollar deposit balance, which includes all companies, individuals, and public institutions, surged 18% in just one month to 67.01 billion dollars (about 99 trillion won) as of the same day.
The overall increase in demand for dollars due to the expansion of Kookmin Pension's overseas investment, large-scale net purchases by individuals, and dollar reserves by companies is estimated to have acted as an upward pressure on the won and dollar exchange rate. In fact, the exchange rate of won and dollar stabilized below 1,400 won from August to September, but it surged after Chuseok and rose to 1477.3 won during the day on the 24th of this month, reaching a seven-month high. The value of the won fell 1.95% and 2.30% against the dollar last month and this month, respectively, making it the biggest loss among major currencies.
However, experts point out that it is impossible to explain the sharp rise in exchange rate simply by increasing demand for dollars. The yen and won depreciated drastically at the same time due to the strengthening of the dollar, and net sales of domestic stocks by foreigners are also considered a burdensome factor. Furthermore, the analysis prevails that concerns about the outflow of funds related to investment negotiations with the US were the key background that boosted the exchange rate of won and dollar in the second half of the year. It is an assessment that the expansion of overseas investment by companies is also acting as a pressure that cannot be ignored.
Experts emphasize that policies that increase the attractiveness of the domestic capital market in the medium to long term are needed rather than dealing with short-term exchange rate fluctuations. An industry insider said, “The trend of individuals preferring overseas investment over domestic investment is being fixed due to the combination of low growth, aging population, lack of innovative companies, and declining potential growth rates,” and “long-term strategies to strengthen national competitiveness and industrial structure must be supported.”
? High exchange rate, because of Seo-hak ants? ... Kookmin Pension actually bought more [Market Signal]
