Strategy briefing

• Korea’s Fair Trade Commission (FTC) last week announced new measures for the nation’s corporate designation system, with the key revision changing the definition of a “large” company from one with assets of KRW5t or more to KRW10t or more, which will likely affect 37 domestic firms (including 20 listed ones).

• The amendments—except those governing profit-taking by majority stakeholders of chaebol (eg, from intra-group transactions) and select firms subject to obligatory disclosure—should take effect as scheduled in September upon presidential decree and without requiring approval by the Korean National Assembly.

• The revisions also modify 38 regulations governing large companies, and even though only a few firms actually engage in operations subject to those rules, ensuing hikes in autonomy should prove positive.

• Notably, Harim, KCC, KT&G, Hankook Tire, and Kolon all have total assets of at least KRW9t, which puts them under threat of regaining large company status even if they still fall short of the KRW10t threshold in September.

Korean markets

• Korea’s shipbuilding/machinery, steel, energy, and chemicals sectors all trade at attractive P/Bs of less than 1x, despite steady upward forecast revisions to their EPS forecasts over the past three months, with the estimate hikes owing to full-blown restructuring for the former two sectors, while rising oil prices have been a boon for the latter two.

• Equity-type funds worldwide suffered net losses last week, due mainly to massive outflows from Western Europe (on Brexit concerns), even though Global EM, Global and Asia Pacific funds saw net inflows. Korea’s domestic-invested equity funds also suffered a net outflow for the week.

Global markets

• Earnings forecasts are faring poorly worldwide, and while EPS forecasts in the US are up slightly vs three months prior, they fell recently. Upward revisions to estimates in Korea appear attributable to bottoming out in the shipbuilding/machinery and steel sectors, while EPS forecasts for corporations in Japan and China remain sluggish.

• In descending order of magnitude, markets in Japan, the US, and Korea have outperformed the MSCI AC World over the past three months, with those in the former rebounding some after suffering from yen appreciation concerns, while the S&P 500 continues to slow after peaking at 2,100 last year. Meanwhile, European markets remain sluggish amid Brexit concerns. 

Source: Samsung Securities https://www.samsungpop.com/