"High Exchange Rate Could Attract Foreign Capital...Positive for Exports as Well" [Click eJongmok]

iM Investment & Securities: "Not Necessarily All Bad News"

It is true that a high exchange rate is perceived as a risk factor in the financial market, but analysts say it does not necessarily have to be viewed solely as a negative. If the period of high exchange rates is short-lived, the adverse effects may be limited, and in fact, there may even be positive effects in terms of exports, corporate earnings, and investment flows.

Recently, the dollar-won exchange rate has temporarily surpassed the 1,500 won mark during trading sessions, maintaining a high level and increasing market caution. A high exchange rate brings several negative factors, such as rising import prices, increased inflationary pressure, and the possibility of a contraction in domestic demand. In particular, it can be a burden for companies with a high proportion of foreign currency debt or for industries highly dependent on raw material imports.

On March 17, Park Sanghyun, a researcher at iM Investment & Securities, stated, "If the rise in the exchange rate is limited to a short period, the shock to the overall economy may be limited." He added, "If the international oil prices and geopolitical risks, which have been the background for the rise in the exchange rate, subside, there is a high possibility that the exchange rate will stabilize quickly."

Researcher Park believes that a high exchange rate can have a positive impact on export performance. When the value of the won weakens, the price competitiveness of Korean products increases. Major export industries such as semiconductors and automobiles can expect an increase in exports as their price competitiveness improves in global markets. Considering the structure of the Korean economy, which has a high proportion of exports, a high exchange rate could play a buffering role for the overall economy.

The rise in the exchange rate can also have a positive impact on corporate earnings to some extent. Many export companies earn revenue in dollars while paying expenses in won, so when the exchange rate rises, their sales and profits in won terms increase due to the exchange rate effect. In fact, for major export sectors such as semiconductors and automobiles, there is a strong assessment that a higher exchange rate could act as a short-term driver of improved performance.

From the perspective of foreign investors, a high exchange rate can make the domestic financial market more attractive. When the value of the won falls significantly, Korean stocks and bonds may appear relatively inexpensive. If expectations form that the exchange rate will stabilize, this could serve as an opportunity for foreign capital to flow back into the market.

A high exchange rate can also influence individual investment trends. The rapid increase in overseas stock investment by so-called 'Seohak Ants'—Korean retail investors investing abroad—in recent years may slow down. As the dollar exchange rate rises, the cost of converting won to dollars to purchase overseas stocks increases, which may reduce the attractiveness of offshore investments. In this case, some investment funds may flow back into the domestic financial market.

Researcher Park said, "For President Trump and the United States, the prolonged Iran crisis poses a significant burden, so efforts to resolve the Iran situation will intensify in March." He continued, "If oil prices stabilize downward as part of President Trump's exit strategy, the current high dollar-won exchange rate could also ease significantly." He added, "In this case, the positive effects of a high exchange rate, as previously mentioned, will have a greater impact on the domestic financial market than the negative ones."

This content was produced with the assistance of AI translation services.