Glean gains from economic pillars

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Glean gains from economic pillars

The euro zone got more bad news over the weekend. On Friday, Fitch Ratings cut Italy’s sovereign credit rating by one notch and Spain’s by two. It also warned of the risk of further downgrades for both Europe’s third- and fourth-largest economies. Europe’s debt crisis is clearly worsening as it spreads from Greece to Italy and Spain, with France now in the cross hairs due to its substantial debt exposure to its peers.

Korea was more fortunate in the past few days, boosted by the news that Samsung Electronics beat expectations regarding its preliminary third-quarter earnings. Despite weaker consumption in Europe and the U.S., not to mention Samsung’s patent dispute with Apple, the company is estimated to have raked in an operating profit of 4.2 trillion won ($3.6 billion) with revenue of 41 trillion won for the quarter. Its wireless phone sector, boosted by sales of its Galaxy S2 smartphones, posted profits in excess of 2 trillion won.

The Galaxy S2 series sold 7 million units across the world, edging ahead of Apple’s iPhone to become the world’s bestselling smartphone. Armed with a cutting-edge competitiveness in the production of parts, Samsung maintained its leadership in the digital market despite strong headwinds and cut-throat competition.

Other major companies are due to release their earnings reports in the coming weeks. Hyundai Motor and Kia Motors are expected to do better than expected thanks to a weaker won and cost-saving efforts. Korean companies are demonstrating their resilience and strength even as the global financial market is engrossed with sovereign debt concerns. Such corporate news will likely boost the economy’s prospects as corporate performance can determine investors’ outlook.

The credit crisis in the euro zone stems largely from poor fundamentals, whereas Korea is struggling due to the sudden flight of foreign capital. Confidence in the domestic market could rebound if the better-than-expected earnings reports help the current account surplus as well as economic growth. Corporate strength is a better antidote to investors’ jitters than vast foreign exchange reserves and currency swaps.

Large companies have been blamed for deepening the polarization of wealth in the country, but their performances serve as pillars propping up the economy. Also, they are stronger now than they were three years ago. With a seasonal IT boom on the cards and the won continuing to weaken, more emphasis should be placed on the conglomerates’ success.
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