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SECTOR REVIEW
MONTHLY MORNING MEETING SEPTEMBER 2012. PRESENTED BY iFAST CAPITAL SDN BHD

NORTH ASIA

SOUTH KOREA 5.0 STARS (VERY ATTRACTIVE)

Korean Won (KRW) appreciated against USD by 2.4% YTD as of 28 Aug 12 The Bank of Korea (BOK) held its benchmark 7-day repo rate unchanged at 3% in Aug 12 HSBC Manufacturing PMI dipped from 49.4 in Jun 12 to 47.2 in Jul 12 Unemployment rate was at 3.1% throughout May 12 to Jul 12 Exports plunged -8.8% y-o-y in Jul 12 compared with last months 1% y-o-y increase; Imports decreased by -5.5% y-o-y in Jul 12

MARKET OUTLOOK
The health of the manufacturing sector in South Korea has deteriorated further in July 2012. The countrys manufacturing PMI Index dropped from 49.4 in last month to 47.2, the lowest reading since December 2011. The decline in PMI was fairly broad-based across the various sub-indices, and markets are particularly worried about the sub-index of new orders which fell to the lowest level since December 2011. In addition, new export orders also declined for the second straight month while the backlog of work slumped to the lowest level since the survey started in April 2004. The sub-index of employment also fell in July, the first decline since February as firms reported that recruitment plans have stalled due to the uncertainty of the global economy. Overall, the PMI in July suggests further deterioration of the manufacturing sector; South Korea as an exportoriented economy is inevitably affected in light of the global economic slowdown. A similar conclusion may be drawn from the disappointing export figures in July. Exports dived unexpectedly by -8.8% year-on-year in July, far worse than the market consensus of a -3.7% contraction and last months 1.1% growth. It was the largest year-on-year decline since September 2009. Although exports to some developed markets like US and Japan grew, shipments to China and Europe, the countrys important trading partners, dropped -0.5% and -4.9% respectively. In terms of the production segmentation, nine out of 13 items recorded a decline. It shows that the impact of weakening external demand has emerged and the South Korean economy which is heavily dependent on exports is expected to demonstrate some volatility in growth over the coming months. On the corporate front, Apple won a victory in a lawsuit against Samsung Electronics in 24 August in a US court and a jury ordered Samsung to pay Apple USD 1.05 billion. Jury also rejected Samsungs counterclaims against Apple about the violation of some of its patents. Although Samsung will appeal against the verdict in higher court, market are concerned that the courts decision will have immense impact on the companys products as Apple would request a ban on sales of Samsungs phones and tablets that infringe its patents. As at 27 August 2012, earnings are expected to decrease by -0.9% in 2012 and then increase by 16.9% in 2013. Estimated PE for the market was at 10.6X and 9.0X for 2012 and 2013. On such attractive valuations, we maintain the South Korea market a very attractive rating of 5 stars.