Input 2024.07.08 18:03
Last modified on 2024.07.09 00:54
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High exchange rates become the new normal
(2) Seohak Ants, the ‘big players’ in the foreign exchange marketSeohak Ants, the ‘Big Hand’ Buying Dollars, Investing 8 Billion Dollars This Year
Net purchase of 2.1 billion dollars in June amid strong dollar
US stock holdings exceed $90 billion
In the short term, it increases exchange rate volatility.
The KRW-USD exchange rate of 1,383 was displayed on the electronic board in the dealing room of the headquarters of Hana Bank in Euljiro, Seoul on the 8th. As of 3:30 p.m., the exchange rate was 1,383.30 won, up 3 won from the previous day, and has been in the 1,380 won range for 6 consecutive trading days this month. Reporter Choi Hyeok Domestic individual investors have invested over 8 billion dollars in U.S. stocks in a situation where the KRW-USD exchange rate has been steadily rising (the value of the KRW has fallen) since the beginning of the year. This overseas investment fever by ants is expected to act as a factor in raising the exchange rate to a certain extent in the short term, but is anticipated to act as a breakwater in the foreign exchange market in the long term.
According to the Korea Securities Depository on the 8th, domestic individual investors net purchased a total of $2.113 billion worth of U.S. stocks in June. This is the largest amount since April 2022, when the U.S. stock investment craze spread immediately following the COVID-19 outbreak.
Individuals have purchased a total of $8.012 billion worth of U.S. stocks this year through the 5th. The amount of U.S. stocks held by individuals (based on balance) exceeded $90 billion at the same point in time, reaching $91.23 billion. If this trend continues, it is expected that the amount of U.S. stocks invested by individual investors this year will exceed the record high of $12.053 billion in 2022.
The proportion of individuals in overseas investment is also rapidly increasing. According to the Bank of Korea, the proportion of individuals in overseas securities investment (based on balance) increased from 7.3% at the end of 2019 to 20% at the end of last year. Experts analyzed that the pressure on the exchange rate is increasing as the demand for dollars from individual investors looking to buy U.S. stocks is increasing amid the global dollar strengthening.
Kim Jin-il, a professor of economics at Korea University, said, “The number of individuals investing in U.S. assets has increased significantly amid the strength of the dollar, which has had some effect on the won-dollar exchange rate this year,” adding, “However, overseas assets secured by individuals can serve as a breakwater to minimize the impact when a crisis occurs in the future.”
The won-dollar exchange rate on this day was 1,383.30 won (as of 3:30 p.m.), up 95.30 won (7.4%) from the end of last year (1,288 won).
Even King Dollars are sweeping up US stocks… “Foreign exchange breakwater in times of crisis”
Individual investors pushing up the won/dollar… unexpectedly friendly foreign exchange authorities
The ‘Seohak Ants’, which are increasing due to the COVID-19 situation, are emerging as a major variable in the foreign exchange market. This is because they are increasing their investment in US stocks even in a high exchange rate situation, which is driving up the won-dollar exchange rate. As a result, the volatility of the foreign exchange market is increasing, but the government and foreign exchange authorities are looking at Seohak Ants more favorably than expected. This is because they believe that dividends and interest income from overseas investment assets are becoming a source of national wealth.
Seohak Ants that Don’t Stop Even with High Exchange Rates
According to the Korea Securities Depository on the 8th, retail investors’ investment in U.S. stocks has increased significantly this year. This is due to the large rise in the U.S. stock market, centered on U.S. technology stocks. In June, individual investors’ investment in U.S. stocks reached $2.113 billion, the highest level this year. The size of individual investment in U.S. stocks in the second quarter also reached $35.7 billion, 83% of the first quarter ($43 billion). In addition to individual investors, institutional investors and companies’ investment in the U.S. is also increasing. At the end of the first quarter, Korea’s net foreign financial assets were $831 billion, up $20.7 billion from the end of last year. The main reason is that overseas securities investment by domestic residents increased by $46.9 billion, from $857.6 billion to $904.5 billion. The proportion of individual investors based on investment balance is estimated to be around 20%. A significant amount of this amount was invested in the U.S. region.
Experts point to the demand for dollars from US investors as one of the factors that led to the average won-dollar exchange rate rising from 1,329.40 won in the first quarter to 1,371.24 won in the second quarter. They explain that the demand for dollars for US investment is making the supply and demand situation tight amid the won’s weakening value due to the widening real interest rate gap and the yen’s depreciation.
Foreign exchange authorities are concerned that the concentration of investment by retail investors might be a factor in increasing volatility. In a report titled “Characteristics and Evaluation of Overseas Securities Investment by Individual Investors” in March, the Bank of Korea pointed out that “individual investors have significantly expanded their overseas securities investment, unlike institutional investors, since COVID-19, when the fear index (VIX) was relatively high,” and that “we should be careful that the expansion of overseas securities investment by individual investors might act as a burden on foreign exchange supply and demand.” Individuals’ investment in Brazilian bonds in 2017 and U.S. Treasury bonds in 2023 are also cited as examples of concentrated investment.
Rapid increase in overseas dividend and interest income
The government is viewing the flow of overseas investment by individuals positively. Some of the dollars coming into the country due to the export boom need to go overseas. There is also an analysis that overseas assets held by domestic investors serve as a breakwater in times of crisis. In a recently released report titled “Bank of Korea’s Policy Response to High Prices following the Pandemic,” Bank of Korea Governor Lee Chang-yong and Bank of Korea Monetary Policy Team Leader Park Young-hwan evaluated, “As overseas investment by residents has increased significantly, Korea has become a net foreign creditor country, which has improved the ability of domestic financial institutions to absorb the shock of the rising exchange rate.”
A Bank of Korea official explained, “During this process of responding to inflation, the gap between the U.S. and Korean base interest rates widened to 2 percentage points, but one of the factors that has led to the relative stability of the foreign exchange market is overseas assets held.”
The government believes that assets invested overseas by individuals and institutions are already having the effect of increasing national wealth. A representative example is the increase in investment income earned overseas through dividends and interest income. Last year, investment income in the balance of payments increased by 56.8% from the previous year to $33.227 billion. It accounts for 93.7% of the current account balance ($35.488 billion) resulting from general trade transactions. Overseas investment income is making up for the deficit ($25.66 billion) in the service sector due to increased overseas travel, etc. A government official said, “As institutions’ overseas investment increases, structural changes have been taking place in the domestic foreign exchange market since the mid-2010s,” and “Recently, as individuals have joined the overseas investment trend, market changes have become more noticeable.”
Reporter Jo Dong-wook leftking@hankyung.com
Input 2024.07.08 18:03
Last modified on 2024.07.09 00:54
surfaceA1
High exchange rates become the new normal
(2) Seohak Ants, the ‘big players’ in the foreign exchange marketSeohak Ants, the ‘Big Hand’ Buying Dollars, Investing 8 Billion Dollars This Year
Net purchase of 2.1 billion dollars in June amid strong dollar
US stock holdings exceed $90 billion
In the short term, it increases exchange rate volatility.
The KRW-USD exchange rate of 1,383 is displayed on the electronic board in the dealing room of the headquarters of Hana Bank in Euljiro, Seoul on the 8th. As of 3:30 p.m., the exchange rate was 1,383.30 won, up 3 won from the previous day, and has been in the 1,380 won range for 6 consecutive trading days this month. Reporter Choi Hyeok It has been revealed that domestic individual investors have invested more than 8 billion dollars in U.S. stocks in a situation where the KRW-USD exchange rate has been continuously rising (the value of the KRW has fallen) since the beginning of the year. This overseas investment fever by ants is expected to act as a factor in raising the exchange rate to a certain extent in the short term, but it is expected to act as a breakwater in the foreign exchange market in the long term.
According to the Korea Securities Depository on the 8th, domestic individual investors net purchased a total of $2.113 billion worth of U.S. stocks in June. This is the largest amount since April 2022, when the U.S. stock investment craze spread immediately following the COVID-19 outbreak.
Individuals have purchased a total of $8.012 billion worth of U.S. stocks this year through the 5th. The amount of U.S. stocks held by individuals (based on balance) exceeded $90 billion at the same point in time, reaching $91.23 billion. If this trend continues, it is expected that the amount of U.S. stocks invested by individual investors this year will exceed the record high of $12.053 billion in 2022.
The proportion of individuals in overseas investment is also rapidly increasing. According to the Bank of Korea, the proportion of individuals in overseas securities investment (based on balance) increased from 7.3% at the end of 2019 to 20% at the end of last year. Experts analyzed that the pressure on the exchange rate is increasing as the demand for dollars from individual investors looking to buy U.S. stocks is increasing amid the global dollar strengthening.
Kim Jin-il, a professor of economics at Korea University, said, “The number of individuals investing in U.S. assets has increased significantly amid the strength of the dollar, which has had some effect on the won-dollar exchange rate this year,” adding, “However, overseas assets secured by individuals can serve as a breakwater to minimize the impact when a crisis occurs in the future.”
The won-dollar exchange rate on this day was 1,383.30 won (as of 3:30 p.m.), up 95.30 won (7.4%) from the end of last year (1,288 won).
Even King Dollars are sweeping up US stocks… “Foreign exchange breakwater in times of crisis”
Individual investors pushing up the won/dollar… unexpectedly friendly foreign exchange authorities
The ‘Seohak Ants’, which are increasing due to the COVID-19 situation, are emerging as a major variable in the foreign exchange market. This is because they are increasing their investment in US stocks even in a high exchange rate situation, which is driving up the won-dollar exchange rate. As a result, the volatility of the foreign exchange market is increasing, but the government and foreign exchange authorities are looking at Seohak Ants more favorably than expected. This is because they believe that dividends and interest income from overseas investment assets are becoming a source of national wealth.
Seohak Ants that Don’t Stop Even with High Exchange Rates
According to the Korea Securities Depository on the 8th, retail investors’ investment in U.S. stocks has increased significantly this year. This is due to the large rise in the U.S. stock market, centered on U.S. technology stocks. In June, individual investors’ investment in U.S. stocks reached $2.113 billion, the highest level this year. The size of individual investment in U.S. stocks in the second quarter also reached $35.7 billion, 83% of the first quarter ($43 billion). In addition to individual investors, institutional investors and companies’ investment in the U.S. is also increasing. At the end of the first quarter, Korea’s net foreign financial assets were $831 billion, up $20.7 billion from the end of last year. The main reason is that overseas securities investment by domestic residents increased by $46.9 billion, from $857.6 billion to $904.5 billion. The proportion of individual investors based on investment balance is estimated to be around 20%. A significant amount of this amount was invested in the U.S. region.
Experts point to the demand for dollars from US investors as one of the factors that led to the average won-dollar exchange rate rising from 1,329.40 won in the first quarter to 1,371.24 won in the second quarter. They explain that the demand for dollars for US investment is making the supply and demand situation tight amid the won’s weakening value due to the widening real interest rate gap and the yen’s depreciation.
Foreign exchange authorities are concerned that the concentration of investment by retail investors might be a factor in increasing volatility. In a report titled “Characteristics and Evaluation of Overseas Securities Investment by Individual Investors” in March, the Bank of Korea pointed out that “individual investors have significantly expanded their overseas securities investment, unlike institutional investors, since COVID-19, when the fear index (VIX) was relatively high,” and that “we should be careful that the expansion of overseas securities investment by individual investors might act as a burden on foreign exchange supply and demand.” Individuals’ investment in Brazilian bonds in 2017 and U.S. Treasury bonds in 2023 are also cited as examples of concentrated investment.
Rapid increase in overseas dividend and interest income
The government is viewing the flow of overseas investment by individuals positively. Some of the dollars coming into the country due to the export boom need to go overseas. There is also an analysis that overseas assets held by domestic investors serve as a breakwater in times of crisis. In a recently released report titled “Bank of Korea’s Policy Response to High Prices following the Pandemic,” Bank of Korea Governor Lee Chang-yong and Bank of Korea Monetary Policy Team Leader Park Young-hwan evaluated, “As overseas investment by residents has increased significantly, Korea has become a net foreign creditor country, which has improved the ability of domestic financial institutions to absorb the shock of the rising exchange rate.”
A Bank of Korea official explained, “During this process of responding to inflation, the gap between the U.S. and Korean base interest rates widened to 2 percentage points, but one of the factors that has led to the relative stability of the foreign exchange market is overseas assets held.”
The government believes that assets invested overseas by individuals and institutions are already having the effect of increasing national wealth. A representative example is the increase in investment income earned overseas through dividends and interest income. Last year, investment income in the balance of payments increased by 56.8% from the previous year to $33.227 billion. It accounts for 93.7% of the current account balance ($35.488 billion) resulting from general trade transactions. Overseas investment income is making up for the deficit ($25.66 billion) in the service sector due to increased overseas travel, etc. A government official said, “As institutions’ overseas investment increases, structural changes have been taking place in the domestic foreign exchange market since the mid-2010s,” and “Recently, as individuals have joined the overseas investment trend, market changes have become more noticeable.”
Reporter Jo Dong-wook leftking@hankyung.com