South Korea's two leading memory chip manufacturers are rolling out unprecedented shareholder return initiatives, a development that is now becoming a pivotal factor in the trajectory of the Korean won. If these firms secure funding through the local currency market to back their reward schemes, the won could extend its recent rally.

SK Hynix Inc (SKHY.US) announced on Wednesday its intention to buy back and cancel shares worth 40 trillion won (approximately $28.6 billion). Additionally, it plans to allocate over 50% of its free cash flow generated between 2025 and 2027 to enhance shareholder returns. According to sources familiar with the matter, the company has also reached a preliminary wage agreement to pay 60% of this year's employee bonuses in company stock, with the remaining 40% disbursed in cash.

In parallel, insiders reveal that Samsung Electronics Co Ltd is set to unveil a new shareholder return program on Friday, potentially reaching up to 110 trillion won (about $79 billion). The scale of this initiative is expected to fall between 90 trillion and 110 trillion won, marking one of the largest capital return moves in the company's history.

Buoyed by the prospect of enhanced payouts from both SK Hynix and Samsung Electronics, the won strengthened further on Friday, briefly climbing 1% to 1,380.35 per dollar. Since early July, the currency has surged, recording its fastest 40-day trading gain since late 2022. This week, the won also broke through the key 1,400-per-dollar level for the first time in over ten months.

Investors are closely monitoring how much demand these payout plans will generate for the won and what portion of the funds might ultimately be repatriated by overseas shareholders. Choi Kyu-ho, an economist at Hanwha Investment & Securities, noted that these companies must pay returns in won, and they could either use their existing won holdings or sell dollars in other markets to purchase the currency. Given the massive sums involved, they may eventually need to offload more dollars to raise the necessary funds.

Despite the initial boost to the won from these announcements, uncertainty remains over whether they can serve as a more enduring catalyst. Analysts point out that it is unclear if the chip giants will tap into their existing cash reserves or convert their dollar-denominated assets into won. Citigroup estimates that roughly half of the funds from these payout programs could be converted back into dollars if overseas equity investors choose to repatriate capital.

As of August 20, data from the Korea Exchange shows foreign ownership stands at 50.1% for SK Hynix and 46.9% for Samsung Electronics. Nevertheless, Kim Jin-wook, Citigroup's chief economist for Korea, stated in a report that these plans should still be a net positive for the won, as the companies will need to convert more of their export earnings into the local currency. He added that robust exports, dollar funding activities, active currency exchanges by the private sector, and hedging operations are all factors underpinning the won's appreciation.