Hello, this is Pazz.
Personally I had been putting cash in bit by bit during this downturn and was still preparing for the KOSPI to reach the low 5,000s with a cash weight of about 40%, and then the trend reversed right away. I think yesterday's index will be hard to see again at least until the end of next year.
Talking with people around me who work in semiconductors, the accepted view is that an extreme memory shortage is confirmed until the end of 2027 and that it will not be resolved in 2028 either, and my personal view is that the shortage will not ease easily until 2030.
Even if the rise in memory prices (P) runs into manufacturers' resistance and cannot be pushed higher, operating profit will keep growing at least little by little through memory makers' capacity expansion (Q), so I believe the share prices of memory companies, with the noise stripped away, will eventually follow earnings.
Therefore those investing in Samsung Electronics and Hynix can set their worries aside and simply hold on to the shares they own.
Anyway, the main topic of today's post is the exchange rate. Since many of you also invest in the US market you will be sensitive to it,
and recently the rate has fallen quickly from 1,550 won to the 1,420 won range
I think the rate will keep falling, to the 1,200 won range by the end of next year and possibly to 1,100 won the year after.
The reason is very clear. It is because Samsung Electronics' and Hynix's operating profits from this year through 2028 are simply enormous.
Roughly estimating three years of operating profit, it comes to somewhere around 2,000 trillion won (operating profit alone, not revenue).
Most of that 2,000 trillion won of operating profit is in dollar assets, and 26% (corporate tax) + 10% (employee bonuses) = 36% of it has to be converted into won. On top of that, if a company like Samsung pays out 50% of FCF as dividends and also buys back shares, in practice at least 50% or more of operating profit would need to be converted. That creates won demand of 1,000 trillion won.
1,000 trillion won is an absurd figure of more than 700 billion dollars even at the current exchange rate.;...
Our country's dollar reserves are what, 420 billion dollars.. Money far exceeding the dollar reserves has to be converted over the next three years. The Hynix ADR conversion is truly a cute amount by comparison. Even divided over 36 months, roughly 20 billion dollars a month has to be converted, so the exchange rate cannot help but fall.
If the memory shortage continues even after 2028, then even if operating profit shrinks, dollar assets have to keep coming back to Korea. It cannot help but keep applying downward pressure on the rate.
Therefore, if my logic is right, those investing in the US market from now on will also have to factor in losses from a falling exchange rate.
