South Korea's two biggest chipmakers just told shareholders they plan to hand out a pile of cash.
That program is a pledge to give money back to the company's owners through dividends or share buybacks. A share buyback is when a company buys its own stock, which usually supports the share price.
That is a lot of money, and it is one reason the won has been moving higher.
Earlier in the week, the currency had pushed past the 1,400 level, a threshold not seen in over 10 months.
For anyone holding Korean assets, that kind of momentum is worth paying attention to.
Chipmakers pay their shareholders in won, so they need to line up local currency to make those payments. The companies can either tap the won they currently possess or convert dollars to obtain the local currency.
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Choi Kyuho, an economist at Hanwha Investment & Securities, said the companies have two ways to handle the payout: they can use won they already have, or they can sell dollars to acquire the needed won.
The size of these programs is what makes the currency impact so noticeable. A few million dollars moving one way does not move a currency, but tens of trillions of won can.
When big exporters sell dollars to buy won, that demand supports the currency. The bigger the payout, the more won the companies probably need to find.
There is a catch, though. It is not clear whether the companies will fund these payouts from cash they already hold in won or by converting their dollar holdings.
Foreign investors could also undo some of the effect. Citigroup estimates that nearly half of the planned shareholder returns could be converted back into dollars if foreign investors choose to move the funds abroad.
That risk is real because foreigners own a large slice of both companies. As of Aug. 20, foreign ownership of SK Hynix was 50.1% and of Samsung was 46.9%, according to Korea Exchange data.
With that much foreign ownership, the decision those investors make after receiving payouts carries extra weight.
Citigroup Korea economist Kim Jin-Wook wrote that the payouts should still be favorable for the won. The rationale: the firms will have to swap a larger share of their overseas revenue into won to finance the buybacks and dividends. He added that robust overseas sales, dollar liquidity, active currency conversion, and corporate hedging are currently underpinning the won.
South Korea's export-driven economy is heavily tied to the fortunes of its semiconductor industry, so the payout plans from Samsung and SK Hynix carry weight beyond just shareholder returns. With foreign investors holding roughly half of both companies, the coming months will show whether the won's gains hold or whether those payouts flow back out of the country.
The won's direction directly affects investors with exposure to South Korea. If the won keeps climbing, your Korean stocks or funds look better when you convert them back to dollars.
But this is not a one-way bet. There is still a lot of uncertainty about how the chipmakers will fund these payouts and what foreign shareholders do with the money after they receive it.
Those two choices will help decide whether the rally keeps going. The actual money flows in the months ahead will tell the real story, and that is the part that matters to your bottom line.
That cash is giving the won a leg up, so pick up the Always Be Buying E-Book to build a steady habit