South Korea Stocks Fall on Profit Concern; Hyundai Motor Drops

By Saeromi Shin

Oct. 21 (Bloomberg) -- South Korean stocks fell, reversing earlier gains, on concern a government plan to shore up financial markets won't be enough to protect corporate profits.

Hyundai Motor Co., the nation's biggest carmaker, slumped 3.5 percent after saying it will idle its only U.S. factory as demand slows. Macquarie Group Ltd. cut its forecast for the Kospi index today, saying that the slowing global economy will weigh on earnings. Hyundai Securities Co. fell 13 percent after Credit Suisse Group cut its recommendation on the stock.

``Measures aimed at thawing the credit squeeze should now lead to economic stimulus packages,'' said Kim Young Il, head of equities at Korea Investment Trust Management Co. in Seoul, which manages the equivalent of $6.4 billion in equities. ``Worries about the global economic slowdown and corporate earnings are still there, and investors will be trapped in such concerns in the next couple of months.''

The Kospi fell 11.53, or 1 percent, to 1,196.10 at the close in Seoul, after earlier rising 2.1 percent. The measure, which has slumped 37 percent this year, rose 2.3 percent yesterday after the government Oct. 19 pledged to guarantee $100 billion of banks' foreign-currency debt and said it will provide $30 billion in U.S. dollars to banks.

The rescue package, Asia's biggest so far, came after a Standard & Poor's statement that banks may have difficulty securing overseas funds triggered a rout in equities and the won. Fitch Ratings affirmed South Korea's credit rating today, saying the rescue plan was ``sufficiently focused and affordable.'' Moody's Investors Service said Korea's sovereign ratings remain ``appropriate.''

Slowing Economy

Bank of Korea Governor Lee Seong Tae yesterday told lawmakers the worsening economic outlook and market turmoil had made setting interest-rate policy difficult and economic growth this year will be ``low.'' Lee cut the benchmark interest rate this month for the first time in four years, to 5 percent.

The government in July forecast growth of 4.7 percent in 2008 for Asia's fourth-biggest economy, slower than last year's 5 percent.

Hyundai Motor retreated 3.5 percent to 58,400 won, and Hyundai Mobis, which supplies parts for the nation's biggest automaker, declined 2.7 percent to 87,700. Hyundai Motor said its U.S. production will fall to 245,000 units, 5.8 percent fewer than planned.

Hyundai Securities fell 13 percent to 9,180 after Credit Suisse cut its recommendation to ``underperform,'' from ``neutral,'' in a note, saying the brokerage is the ``most vulnerable'' to a bear market given its dependence on equity brokerage income.

The Kospi is headed for its first yearly decline since 2002. Macquarie now forecasts the index to end 2008 at 1,170, a 16 percent decline from its previous estimate.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.