S. Korea Stocks Drop by Most in 3 Weeks; Shipyards Lead Retreat

By Kyung Bok Cho

Aug. 4 (Bloomberg) -- South Korean stocks fell by the most in three weeks, led by shipbuilders and automakers, on concern a global economic slowdown is hurting earnings.

Daewoo Shipbuilding & Marine Engineering Co. plunged the most in a year after order cancellations at shipyards raised concern more clients will fail to make payments. Hyundai Motor Co. slid after sales declined in South Korea and the U.S.

``The shipbuilding industry had been turning down so the news of the cancellation triggered a lot of selling, maybe too much,'' said Kwak Tai Ho, who helps manage the equivalent of $1.5 billion at Kyobo Investment Trust Management Co. in Seoul. ``The high oil prices of late are deflating demand for cars.''

The Kospi lost 31.20, or 2 percent, to 1,542.57 as of 1:28 p.m. in Seoul, heading for its biggest decline since July 15. Transport-related stocks accounted for a third of the decline. More than four stocks fell for each that rose.

The benchmark index has lost 19 percent this year on concern a cooling global economy will damp demand for South Korean exports as domestic inflation accelerated to the fastest pace in almost 10 years. South Korea is expected to enter stagflation in the second half of 2008, the Federation of Korean Industries, which represents the nation's industrial companies, said in July.

Daewoo Shipbuilding, the world's third-largest maker of ships, tumbled 13 percent to 35,700 won, the most since Aug. 16. The company said Aug. 1 that it canceled a 619 billion won ($609 million) order after the client failed to pay. Hyundai Mipo Dockyard Co., which said on the same day it nullified a 197 billion won contract, fell 7.9 percent to 182,000 won, the most since March 10.

`Weak Economy'

Hyundai Heavy Industries Co., the world's biggest shipbuilder, lost 9.3 percent to 279,000 won, the lowest since May 16, 2007. Samsung Heavy Industries Co., the second largest, declined 8.5 percent to 35,250 won, the most since Jan. 30.

Shipping lines also fell on concern financing for vessel purchases will become more difficult amid a global credit contraction. Hanjin Shipping Co., the nation's biggest shipping line, retreated 7.9 percent to 30,400 won, the most since Oct. 22. Hyundai Merchant Marine Co., the second largest, lost 4.1 percent to 39,450 won.

``The order cancellations show a growing number of ship owners are getting pessimistic on the shipping market,'' said Han Byung Hwa, an analyst at Hyundai Securities Co. in Seoul. ``The weak economy is making financing for new shipbuilding harder.''

Hyundai Motor, South Korea's largest automaker, retreated 2,600 won, or 3.7 percent, to 68,100, the most since July 15. The company said on Aug. 1 that July sales in the domestic market dropped 3.6 percent after labor strikes disrupted production. U.S. sales fell 6.5 percent in the same period.

Ssangyong Motor Co., the South Korean unit of China's biggest automaker, declined 140 won, or 4.6 percent, to 2,925.

The following are among the most-active stocks in South Korean markets.

Daewoo Securities Co. (006800 KS), which said on Aug. 1 that fiscal first-quarter net income slumped 63 percent, fell 750 won, or 4.2 percent, to 17,050, the most since July 15. Merrill Lynch & Co. cut its price estimate by 14 percent to 16,800 won, in a report. The company's fundamentals will be ``weak'' in the near term as competition intensifies and capital markets remain volatile, the brokerage said.

Hana Tour Service Inc. (039130 KS), South Korea's biggest travel agency, fell 950 won, or 3.1 percent, to 29,800, the lowest since July 16. Goldman, Sachs & Co. cut its recommendation to ``sell'' from ``neutral,'' in a report. July earnings were ``significantly weaker than expected'' while gains in market share are slowing down, the brokerage said.

Hanjin Heavy Industries & Construction Co. (097230 KS), South Korea's first exporter of ships, dropped 4,700 won, or 11 percent, to 38,150, the most since March 10. BNP Paribas SA cut its price estimate by 19 percent to 70,000 won, in a report, citing a ``more conservative valuation'' of the company's core businesses and its yard in the Philippines.

Hankook Tire Co. (000240 KS), which said on Aug. 1 that second-quarter profit fell 13 percent after oil and rubber prices rose, slipped 400 won, or 2.8 percent, to 14,150. The company will face increased pressure from rising raw-material costs in the third quarter, Good Morning Shinhan Securities Co. said in a report.

Hynix Semiconductor Inc. (000660 KS), the world's second- largest computer-memory maker, lost 550 won, or 2.6 percent, to 20,500, the lowest since Nov. 3, 2005. The likelihood has risen that memory prices will decline in the third or fourth quarters, Lehman Brothers Holdings Inc. said in a report.

Kangwon Land Inc. (035250 KS), which operates the only casino in South Korea open to locals, gained 500 won, or 2.1 percent, to 24,550, the highest since Jan. 9. Mirae Asset Securities Co. raised its price estimate by 15 percent to 31,000 won, in a report. Second-quarter operating results beat estimates, the brokerage said.

Korea Exchange Bank (004940 KS), the Korean lender HSBC Holdings Plc seeks to acquire, lost 350 won, or 2.7 percent, to 12,700, the lowest since July 17. HSBC is trying to negotiate a lower price for the bank from Lone Star Funds, two people familiar with the matter said.

Michael Breen, president of Insight Communications Consultants, which represents Lone Star in Seoul, said he had no immediate comment.

Korea Fine Chemical Co. (025850 KS) dropped 2,400 won, or 3.5 percent, to 66,100, the lowest since April 10. The company said on Aug. 1 that it booked 12.3 billion won in losses from derivatives in the second quarter.

LG Telecom Ltd. (032640 KS), South Korea's smallest mobile- phone operator, gained 250 won, or 3 percent, to 8,730. It was the only one of the nation's wireless-service providers to advance. The company said on Aug. 1 that it signed up a net 20,404 subscribers in July, or 20 percent more than in the previous month.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net