According to informed sources, the won has weakened to a level that forces the National Pension Service to sell nearly 50 billion US dollars in foreign exchange to hedge against losses.
"If the average closing exchange rate exceeds around 1450 won for five consecutive trading days, the National Pension will implement a strategic hedge." They stated that once initiated, the strategic currency hedge will continue unless the exchange rate falls significantly.
According to foreign media reports, signals from the Federal Reserve about reducing rate cuts in 2025 have dampened market sentiment. The exchange rate of the won against the dollar fell by 1.1% to 1451.90 in onshore trading in Seoul, with foreign and institutional investors being net sellers. The South Korean stock market also could not escape the fate of decline, with electronic and internet stocks leading the drop on the same day. Memory chip manufacturers Samsung Electronics and SK Hynix fell by 3.3% and 4.6%, respectively, following the overnight decline of their American counterpart Micron Technology. Mobile internet platform company Kakao Corp. fell by 5.1%.
Sources said that if the won exchange rate deviates significantly from the long-term average level of over 20 years, the pension fund is obligated to hedge its foreign exchange assets by up to 10%. Due to the sensitivity of this matter, these individuals requested anonymity. A formula disclosed by informed sources shows that as of Wednesday, the won against the dollar has fallen to its lowest level since 2009, and the level of 1 dollar to 1450 won has already surpassed the internal trigger mechanism of the National Pension.
The website of the National Pension Fund of Korea shows that, as of the end of September, the total amount of foreign currency assets of the pension fund was 485.5 billion US dollars.
A source said that after the National Pension Fund recently bought 2 to 3 billion US dollars in foreign exchange each month, the foreign exchange sold next year may exceed the foreign exchange bought. The fund is the largest participant in the domestic foreign exchange market in South Korea, and if it stops buying, the downward pressure on the won is expected to ease.
Due to the political uncertainty from the president's impeachment and the appreciation of the dollar, the won is the weakest currency in Asia this year, with a decline of over 11%.
The Governor of the Bank of Korea previously stated that although the exchange rate of the dollar to the won has risen, there is no concern about the market situation. There are no signs of a crisis in the foreign exchange market, and there are no plans to hold a special meeting to lower interest rates this month. When the martial law incident caused increased volatility, operations were conducted to stabilize the exchange market, and if excessive fluctuations are found, interventions in the foreign exchange market will be made again. Once the political process stabilizes, there is still room for the dollar to fall against the won.
In addition, the South Korean finance minister pointed out that they will actively respond to excessive volatility in the foreign exchange market and will use all available resources to manage the economy as stably as possible.
The article is reprinted from: Jinshi Data