Korea’s Stock Market Resilience Has Goldman, UBS Mulling Outlook

(Bloomberg) -- As investors in Seoul will likely tell you, there’s a lot of noise around the South Korean market these days.

With the country’s export-heavy economy hampered by the ongoing U.S.-China trade war, a fresh battlefront with Japan is adding another wrinkle to an already murky outlook for tech giants such as Samsung Electronics Co. and SK Hynix Inc.

Though lagging its regional peers this year, Korea’s Kospi Index has shown some resilience, managing to eke out a 3% gain despite the multiple headwinds. The benchmark joined those in China and Japan pushing higher Tuesday, as Asia Pacific stocks mostly gained.

Still, where the gauge goes from here is very much up for debate.

Goldman Sachs Group Inc. strategists led by Richard Tang see the worst as potentially behind Korea, and the firm recently upgraded the market -- alongside fellow chip export hotbed Taiwan -- to market-weight.

“The worst of earnings downgrades for both markets should be behind us, as consensus assumptions now appear more reasonable,” the strategists said in a July 21 note to clients. “The sequential earnings recovery is diverging from the weaker macro trends, but history suggests to us that micro trumps macro in driving equity returns.”

The strategists forecast Korean earnings to decline 26% this year, but with the first half likely the intra-year bottom, that potentially positions for a gradual second half recovery.

As for the current conflict with Japan, “our tech analysts’ initial impression is that the concern may be overblown” with South Korean manufacturers looking for alternatives from the needed Japanese materials, they said.

The picture looks less rosy for UBS Group AG analysts including Yong-Suk Son, who cut their 2019 Kospi target to 2,100 points from 2,200 -- right about where the index sits now.

The analysts see the “fallout” from the Japan spat and U.S.-China trade war not fully reflected in either consensus earnings or share prices. Second-quarter estimates for 60% of 109 key Korean companies have also fallen from a month ago, with big cuts including Korean Air Lines Co. and S-Oil Corp.

In the meantime, traders will get a fresh chance to weigh Korea’s progress when it reports second-quarter economic growth on Thursday.

Stock-Market Summary

• MSCI Asia Pacific Index ex-Japan little changed
• MSCI Asia Pacific Index up 0.3%
• Japan’s Topix index up 0.9%; Nikkei 225 up 1%
• Hong Kong’s Hang Seng Index little changed; Hang Seng China Enterprises up 0.4%;
• Shanghai Composite little changed; CSI 300 down 0.1%
• Taiwan’s Taiex index little changed
• South Korea’s Kospi index up 0.5%; Kospi 200 up 0.6%
• Australia’s S&P/ASX 200 up 0.5%; New Zealand’s S&P/NZX 50 up 0.4%
• India’s S&P BSE Sensex Index up 0.3%; NSE Nifty 50 up 0.2%
• Singapore’s Straits Times Index up 0.2%; Malaysia’s KLCI up 0.1%; Philippine Stock Exchange Index down 0.2%; Jakarta Composite little changed; Thailand’s SET little changed; Vietnam’s VN Index up 0.4%
• S&P 500 e-mini futures little changed after index closed up 0.3% in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Lianting Tu, Cormac Mullen

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