Weaker Q2 earnings weigh on market

Preliminary earnings of South Korean listed companies are vindicating analysts’ downward revisions of their Q2 projections, due to a lingering US-China trade war impact, data showed Sunday.

Of 145 companies listed on the top-tier Kospi, covering nearly three-quarters of the market cap or a combined 1,099.3 trillion won ($973.3 billion), 72 reported earnings within 10 percent of the market consensus, according to data compiled by KB Securities as of Thursday.

Of the remainder, the majority recorded an “earnings shock,” in which operating profit or net profit was at least 10 percent lower than the consensus. Forty-three companies fell short of expectations, with 30 companies beating the market consensus by more than 10 percent.

That meant that about 50 percent of reported earnings fell withi the consensus range, compared to 64 percent previously.

“We see more companies meeting the consensus,” wrote Kim Min-gyu, a quant analyst at KB Securities. “The thing is, the forecast for the second quarter had already been revised down.”

Another set of data compiled by local market tracker FnGuide indicated that, of 155 companies from either the Kospi or second-tier Kosdaq, 85 fell short of market consensus. Among them, 58 recorded either operating profit lower than the estimate by over 10 percent, or operating loss.

Market giants were no exception to the trend.

Samsung Electronics’ operating profit was 2.8 percent lower in preliminary release than the consensus, while that of LG Electronics and Naver was 8.3 percent and 6.2 percent lower, respectively, showed data from FnGuide. Biosimilar maker Celltrion recorded an earnings shock, with 28 percent lower operating profit.

“Emerging markets’ wary eyes on (US President Donald Trump) persist, while the continuing downgrading in future earnings estimate will lower the possibility of a rebound in the Kospi market,” Kim Yoon-seo, an analyst at Shinhan Financial Investment, wrote in a Friday note.

Analysts also pointed to factors that would weigh further on third-quarter earnings, ranging from macroeconomic indicators to a possible decrease in passive financial flows into the Korean market.

Kim Yong-gu, an analyst at Hana Financial Investment, also said that the forthcoming inclusion of the second batch of China A shares into the MSCI EM index also casts a shadow on local stock markets.

Kim estimated that Korean markets may suffer a 135 billion won decrease at most in passive influx from the inclusion, which he called a “neutral level of impact” on Korean stock markets.

In addition, signs of weakening macroeconomic circumstances are also weighing on the market, as South Korea’s composite leading indicator by the Organization for Economic Cooperation and Development has extended a losing streak for 15 months until June. The CLI of Korea as of June came to 99.22, the lowest since November 2012, according to the OECD on Sunday. A score below 100 means a shrinking economy.

By Son Ji-hyoung
(consnow@heraldcorp.com)