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Strategists are abandoning forecasts for a record high in South Korea's composite stock index as won gains spur the steepest earnings outlook cuts in Asia.
The average year-end Kospi estimate in a survey of strategists has dropped about 6 per cent since December to 2,210 points. While that still represents a 10 per cent gain from Monday's close, it is below the record 2,228.96 reached in May 2011.
Analysts have cut profit forecasts by 15 per cent this year, with Samsung Electronics, Korea's biggest company, saying second-quarter results will be "not that good".
Businesses in Korea's US$1.3 trillion stock market are getting squeezed as the strongest won in six years and sluggish global growth curb export earnings.
Disappointing corporate profits may make it harder for President Park Geun-hye to achieve a goal of boosting growth in Asia's fourth-largest economy to a four-year high of 3.9 per cent this year.
"Investors are turning cautious on the market," said Kwon Goohoon, the chief Korea economist and strategist at Goldman Sachs, which has cut its Kospi forecast to 2,200 from 2,350 in December. "They want to see the numbers before moving forward."
The brokerage reduced its recommendation on the nation's stocks last month for the first time since November 2012, to market-weight from overweight.
Nomura and Credit Suisse have both lowered their year-end forecasts for the Kospi by more than 8 per cent.
The index dropped 0.5 per cent in the first half of the year, compared with a 4.8 per cent advance by the MSCI All-Country World Index.
The won strengthened 5.2 per cent last quarter as Korea's current account surplus widened and its financial markets lured net inflows of US$5.6 billion. The yield on the three-year government bond declined 12 basis points last month to 2.7 per cent.
Korean outbound shipments fell 1 per cent in May, while industrial output shrank 2.1 per cent.
Manufacturers' confidence has dropped to a seven-month low.
Data out yesterday showed exports rose 2.5 per cent last month, trailing economists' 5.1 per cent median growth estimate.
Low valuations and an expected overhaul of Samsung shareholdings will support equities, according to Midas International Asset Management.
The Kospi trades at about the same level as its companies' net assets, half the multiple of MSCI's global gauge. Restructuring at Samsung, the country's biggest family-run conglomerate, may unlock "hidden value", according to CLSA Asia-Pacific Markets.
"The market is already so cheap," Midas chief executive Heo Pil-seok said. "We also have the Samsung revamp issue that limits the downside."
Korea's individual investors are pulling money from the stock market to invest overseas. They have sold a net US$176 million of Kospi index shares so far this year and held US$13.1 billion of overseas securities at the end of May, the most since October 2010, according to the Korea Securities Depository.
The drop in earnings estimates for Korean companies is the most among 18 countries in Asia, followed by a 12 per cent decrease in Vietnam and a 10 per cent decline among Thai firms.


Rising won hits South Korean stock and earnings estimates

Businesses in Korea's US$1.3 trillion stock market are getting squeezed as the strongest won in six years and sluggish global growth curb export earnings. Photo: Reuters

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Company profit forecasts are slashed as currency gains affect country's exporters


Strategists are abandoning forecasts for a record high in South Korea's composite stock index as won gains spur the steepest earnings outlook cuts in Asia.


Rising won hits South Korean stock and earnings estimates

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Company profit forecasts are slashed as currency gains affect country's exporters

Company profit forecasts are slashed as currency gains affect country's exporters