Asian Shares Mostly Flat; Weak Samsung Earnings Drag South Korean KOSPI Lower

South Korea’s KOSPI fell as shares of technology industry heavyweight Samsung Electronics fell more than 1% after reporting that second-quarter profit likely dropped 56% as compared to a year ago. There is a growing dispute between Japan and South Korea over wartime forced labor, which will likely exacerbate the situation for Samsung, as well as other semiconductor rivals in South Korea like SK Hynix.
James Hyerczyk
Shanghai Stock Exchange.

The Asian-Pacific markets are trading mixed on extremely low volume ahead of the U.S. Non-Farm Payrolls report at 12:30 GMT. Worries over U.S.-China trade relations, the threat of new tariffs against the European Union and an escalation of the tension between the U.S. and Iran are taking a backseat to the jobs report, which may offer clues as to whether Federal Reserve policymakers will cut interest rates at its July monetary policy meeting on July 30-31.

At 04:47 GMT, Japan’s Nikkei 225 Index is trading 21715.17, up 12.72 or +0.06%, South Korea’s KOSPI Index is at 2107.43, down 1.30 or -0.06% and Hong Kong’s Hang Seng Index is trading 28817.67, up 21.90 or +0.08%.

China’s Shanghai Index is at 2999.92, down 5.33 or -0.18% and Australia’s S&P/ASX 200 is trading 6755.70, up 37.70 or +0.56%.

Samsung Electronics Drags KOSPI Lower

South Korea’s KOSPI fell as shares of technology industry heavyweight Samsung Electronics fell more than 1% after reporting that second-quarter profit likely dropped 56% as compared to a year ago.

According to CNBC, “Samsung Electronics said on Friday that profits for the three months that ended June more than halved from a year earlier following continued weakness in price and demand of memory chips.”

“The world’s largest smartphone maker and supplier of memory chips said operating profit was at 6.5 trillion Korean won ($5.5 billion), which was slightly better than an industry estimate of 6 trillion won, but was down about 56% from a year earlier.”

“Memory components, which are used in mobile handsets and enterprise servers, comprise Samsung’s main profit-making business.”

Japan-South Korea Trade Tension

There is a growing dispute between Japan and South Korea over wartime forced labor, which will likely exacerbate the situation for Samsung, as well as other semiconductor rivals in South Korea like SK Hynix.

On Monday, Japan announced stricter restrictions on exports of crucial high-tech materials that are used by South Korean electronics companies to make chips and smartphone displays. Samsung and SK Hynix – the world’s top memory chipmakers, and suppliers to Apple and China’s Huawei Technologies – could face delays if the measures that took effect on Thursday drag on.

South Korea said Thursday it may retaliate. “Implementing corresponding measures against Japan cannot be ruled out,” Finance Minister Hong Nam-ki told South Korea radio. He said the trade row could cause “unfortunate damage to both Korean and Japanese economics”.

Japan accounts for 70%-90% of the production of the three materials, Japanese media have said, making it difficult for South Korean chipmakers to find alternative sources of supply.

Two Points:  Watch the U.S. chipmakers since this news may have a trickle-down effect. Two, the United States isn’t the only country to use tariffs and trade restrictions to force another country to give in to its demands.

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