South Korea may incur a deficit in its current account balance in April due to the surge in capital outflow from dividend payouts to foreign investors on top of subdued exports.
The country’s top 20 dividend stocks are set to give out 5.38 trillion won ($4.35 billion) to foreigners in dividends, according to the Financial Supervisory Service and Korea Exchange on Monday.
Foreign investors are expected to receive the dividends in April as the payouts need to be made within a month from the endorsement at March shareholder meetings.
Samsung Electronics, which pays quarterly dividends, needs to hand out 2.4 trillion won to its shareholders, of which 56.9 percent are foreigners. Offshore investors are estimated to receive about 1.37 trillion won from the Korean tech giant in mid-April.
Another quarterly-paying company Posco will distribute 164.7 billion won to foreigners.
Shinhan Financial Group, which makes year-end payouts, will pay 569.2 billion won to foreign investors. KB Financial Group is expected to give out 572.6 billion won, Hyundai Motor 315.4 billion won and SK Hynix 345.4 billion won.
This outflow of foreign dividends this month can cause a red in Korea’s current account balance. In April 2019, the country reported its first current account deficit in seven years due to the $6.7 billion in dividend payouts and weak exports.
Analysts project this year’s dividend payouts to foreigners to be bigger than last year’s as companies including Samsung Electronics, SK Telecom and Samsung C&T have decided to either scale up or stay pat on their dividends this year.
What can relieve the current account balance is the collapse in global crude prices, which would have made oil imports cheaper.
Experts say worries over a potential current account deficit this month are different from previous economic crises. Korea saw a deficit from 1995 to 1997 ahead of the Asian financial crisis and also from April to August 2008 before the fall of Lehman Brothers in September that set off the global financial meltdown.
Kim So-young, professor of economics at Seoul National University, said “this month had a seasonality factor that is unlikely to lead to a prolonged deficit as in previous financial disasters,” while adding that “the COVID-19 impact on future exports would need to be closely monitored.”
“A current account deficit would have limited effect on Korea’s forex markets given the $60 billion currency swap deal with the U.S.,” noted Sung Tae-yoon, economics professor at Yonsei University. He said falling oil prices might be beneficial in the short run but damaging in the long run as they would hurt the petrochemicals industry.
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