[Good Morning Stock Market] Q2 Earnings Forecasts Significantly Lowered... "Negative Economic Growth Inevitable"

I Ju-yeol, Governor of the Bank of Korea (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Boryeong] The earnings forecasts for the second quarter, which were most significantly impacted by the novel coronavirus disease (COVID-19), have already undergone sufficient downward revisions. It is analyzed that if the already lowered forecasts are met, there will be no shock to the market. There are also opinions that positive growth projected by the government for the domestic economy this year will not be easy to achieve.

◆ Kim Kwanghyun, Researcher at Yuanta Securities = Around the first quarter earnings announcements, there was a sharp downward adjustment of the second quarter forecasts, and rather, in June, a slight upward revision was observed. Although the number of forecasts decreased in June, making the reliability of the upward revision not very high, it is meaningful that there were at least no further downward revisions.

With the earnings announcements from Samsung Electronics and LG Electronics, the curtain has risen on the second quarter earnings season. Both stocks reported results exceeding forecasts (Samsung Electronics 123.3%, LG Electronics 114.9%), showing a decent start. Although the forecasts were lowered due to downward revisions, if these are met, it will not shock the market. And since expectations are already low, market interest does not seem high.

Through the second quarter earnings season, forecasts for the third and fourth quarters are expected to be significantly lowered. This is because the spread of COVID-19 is not stopping easily, delaying expectations for profit normalization. However, as market interest is quickly shifting to next year's earnings, even if second-half earnings are revised downward, interest in this is expected to be limited.

◆ Kim Yumi, Researcher at Kiwoom Securities = Next week, the domestic second quarter economic growth rate announcement is scheduled. The first quarter economic growth rate recorded -1.3% quarter-on-quarter and 1.4% year-on-year, making negative quarterly growth inevitable due to COVID-19. In the second quarter, consumption and service-related production are expected to improve due to the government's disaster relief funds, and government spending is also expected to increase. However, exports were sluggish due to lockdown measures in major advanced countries, and the investment sector is expected to have been weaker compared to consumption, so continued negative quarterly growth is inevitable. Also, considering last year's base effects, year-on-year growth is expected to turn negative.

Looking at South Korea's economic growth trajectory this year, the second quarter is expected to be the trough. In the second half, quarterly economic growth rates are expected to turn positive, indicating a gradual recovery. However, positive growth projected by the government this year is not expected to be easy. Although the government has recently strengthened its willingness to stimulate the economy by expanding fiscal spending, it is difficult for demand recovery in the private sector, such as households and businesses, to improve rapidly excluding policy effects. Rather, since the Bank of Korea hinted at the possibility of further downward revision of this year's growth forecast from -0.2% at the July Monetary Policy Committee meeting, downward revisions in the market may follow after the second quarter growth announcement. This suggests that unless COVID-19 is completely controlled, government spending to cushion the private sector's demand slump will inevitably continue for the time being, and negative growth this year is unavoidable.

This content was produced with the assistance of AI translation services.