Earning Season Outlook for Korea

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Hi this is Frank here. How’s everyone dealing with the scorching hot summer? Around this time of the year, there is a big movement in the business world. Investors and corporate alike become attentive when the earning season approaches. The term “earning season” is probably refreshing for many who are not interested in stocks or shares.

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What is the “earning season”? The earning season refers to a period time which a large number of publicly traded companies release their quarterly earning reports. Initially, the term earning season was used among American corporates. Now, it is commonly used among Korean companies as well. In general, each earnings season begins one or two weeks after the last month of each quarter and the majority of public companies release their earnings during mid January, April, July, and October. It is important that not all companies report during earnings season because the exact date of an earnings release depends on when the given company’s quarter ends.

It is obvious that the earning season is important for investors because when companies release their earnings, it directly influences their stocks in the stock market. Investors make their decisions based on the released reports that contain information on each firm’s quarterly sales and net profit growth rate, estimation, trend, and the growth rate for the next quarter which comes pouring out. Since the future of the stocks relies on company’s earnings, during this period, corporate stocks go through a massive movement. Especially when the stock market is going through a lethargic and ambiguous stock trend, stock prices are more influenced by the earnings rather than the company’s growth.

According to recently released earnings, compared to the previous quarter and a year before, American firms have shown continuous improvement. First of all, in comparison to a year earlier, it has grown 2.4% and 3.8% than the previous quarter. Thus, we can conclude that American companies have done reasonably well.

The performance of last year’s fourth quarter was poor because of concerns over America’s fiscal outlays particularly sequester caused a big drop in private consumption expenditure. Nevertheless, since the results for this year’s first and second quarter has shown great improvement, we can make positive assumptions for America’s recovery during this season.

So, how will this affect Korea’s stock market? Compared to the past, it is true that America’s earning is exerting less influence on Korean stock market. In the past, when America’s companies did well, it also had positive effect on Korea’s stock market. However, nowadays, the linkage between America’s earnings and the Korean stock market are segmented according to diverse categories and class so we can say overtime, the influence of America’s earnings on Korea is limited.

Korea used to rely largely on exports, and our biggest trading partner was the U.S. Thus, America’s earnings were a good standard to determine Korea’s earnings. In recent years with China’s dramatic rise, a larger portion of our trade was done with China and America’s earnings effect diminished.

The focus of this earning season is America’s consumption in prominent sectors is showing great improvement and Korea’s IT and car industry takes up a large percentage of Korean exports to America. Since it is included in American’s major consumption sector, we can anticipate a brighter future for Korea’s IT and car industry.

In addition, this year Apple has shown poor results which led to weak outcome for Samsung electronics earnings. Thus, we can conclude that by looking at Apple’s future, we can anticipate the future of Korea’s IT industry centered round Samsung electronics, another focus point of this earning season.

What’s different from the past is that in this earning season we should take a look at America’s earnings report on housing. America is slowly recovering from its economic recession and one of the biggest driving forces behind this achievement was its housing market.

Like always, another earning season is on its way. Investors will always be attentive to the earning reports released by public traded companies. There is a term called “earning shock” and “earning surprise”. Earning shock refers to the bad news earning season brings to investors. On the other hand, earning surprise refers to the good news brought by the earning season.

Let’s hope that the next quarter will be filled with more earning surprises than earning shocks.

Min Ho Jung (loveus92@hanmail.net)

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