S. Korean shares likely to see weaker momentum despite earnings surprises in Q1

20:21, April 26, 2010      

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As South Korean firms' first- quarter earnings season nears an end, around 40 percent of the firms that reported earnings exceeding a consensus, or an average of expected earnings, by more than 10 percent.

Thanks to a surge in earnings, South Korean shares stayed on a rising trend as well, despite the European fiscal crisis and the Goldman Sachs shock.

South Korea's main stock index, however, is not likely to keep up the strong move after the earnings season ends as the upward momentum may calm down in the long term, local analysts said.


According to the Financial Supervisory Services (FSS) and corporate information provider FnGuide, 37 of South Korea's listed companies reported preliminary operating profits totaling to 6.99 trillion won (6.3 billion U.S. dollars) for the first quarter, up 6.3 percent from the Q1 consensus of 6.52 trillion won (5.9 billion U.S. dollars).

Among the companies, 14 firms saw operating profits that beat the consensus by more than 10 percent.

Hyundai Motors stood as one of them, posting an operating profit of 702.7 billion won (637.6 million U.S. dollars) for the cited period, up 22.7 percent from its consensus of 572.9 billion won (520 million U.S. dollars).

Despite a stronger South Korean currency, which worked against the export-driven business, a surge in new cars boosted up the company's sales and net profit, South Korea's Yonhap News Agency said.

Samsung Electro-Mechanics also beat its consensus operating profit of 51.1 billion won (46.4 million U.S. dollars) with around twice the figure of 119.1 billion won (108.1 million U.S. dollars).

Samsung Engineering, another affiliate of Samsung Group, also stood over the consensus of 78.6 billion won (71.3 million U.S. dollars), reporting an operating profit over 100 billion won (90.7 million U.S. dollars).

Amid most of the 37 firms seeing better-than-expected earnings, the number of those reporting earnings shocks, or operating profits that were lower than the consensus by 10 percent, marked six, or 16.2 percent.

The upbeat data came in line with rosy earnings data in the United States, which altogether encouraged investor sentiment in the local market.

According to local analysts, U.S. market giants, including Goldman Sachs, Bank of America, Microsoft, and American Express, showed an improvement in earnings, not only compared with market expectations but also with data from the previous year, Yonhap said.


Despite the Q1 earnings surprises, share prices are not fully reflecting the progress in corporate performance, though the index steadily remains on an upward trend, according to media reports.

South Korea's main index KOSPI on Monday ended at 1752.20, up 0.87 percent from the previous session and settling another peak in 2010.

Despite the recent rally in the financial market, analysts and experts in the market are dubious on how long the strong move will last, citing lingering uncertainties.

As the local market is recently driven by a tug-of-war between unfavorable factors, such as Greek fiscal debts, China's liquidity control, and U.S. financial regulation, and upward momentum such as earnings surprise, the stock market may see weaker inertia after the earnings season ends.

The earnings momentum after the close of the first-quarter earnings season may wither as corporate performances down the road may not catch up with the strong profits in the first quarter, analysts said.

"Although local firms' operating profits in the first quarter are expected to rise 50 percent compared to a year ago, the second- quarter and third-quarter figure will likely to see a gain of 2 percent and 8 percent, respectively, which is not enough to support the current-pace rise in share prices," Choi Sung-lac, analyst at SK Securities Co., told Yonhap News Agency.

Uncertainties from overseas, such as a possibility of continued liquidity tightening in China, may turn out to be burden to the local index, Choi added.

On the other hand, some analysts forecast the performance consensus for the second quarter and the third quarter are being revised up, which lends support to a favorable share price trend after the earnings season.

Amid conflicting views, the stock market is awaiting to see how the market will move in the post-earnings season.

Source: Xinhua


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