Introduction
Increasingly, consumer electronics is the driving force behind technological advance, whereas in the past it was military and space projects. Consumer electronics has become the leading edge of technology because of the potentially huge sales volumes. The market is extremely competitive and so big global companies invest in a huge research and development effort in order to introduce new products with better features and performance than their rivals. The study of consumer electronics, therefore, has the double benefit that it is about state-of-the-art technology as well as being interesting and relevant to our everyday lives. However, simply to study the current product ranges features and standards would hardly be a suitable subject for academic study, and also the subject changes so fast that everything would be out of date too quickly. A compromise has to be drawn therefore between describing the interesting features on the one hand, and explaining the underlying principles on the other. This module is primarily aimed at students of industrial design, product design or general engineering that require some understanding of how electronic systems work and what they are capable of. In fact, electronics is so all-pervasive in modern life that there are few students that would not benefit from an elementary understanding of the subject business, medicine, aviation, communications, transport, space exploration, industrial automation, crime prevention, science, entertainment, music, gaming and environmental monitoring have all been revolutionised by electronics. This module should also be valuable for electronic and electrical engineering students in the early years of study, because courses often bombard the student with theory and fail to convey the big picture. The primary aims of this module are, therefore, to:1. Give an understanding of the design and manufacture of consumer electronic products 2. Demonstrate the complexity of many everyday items from systems design aspects to semiconductor device technology 3. Introduce microcontroller programming techniques and give an introduction to the design and integration of embedded systems in modern products. 4. Demonstrate the importance of the fundamentals of Physics in a range of technology areas 5. Give a practical context to some of the most advanced subjects in Engineering, such as communications theory and signal processing, control theory, electromagnetism and semiconductor physics. In studying electronics it is all too easy to get bogged down with details like resistor colour codes and different types of capacitor. If there was just one single motivation for writing these notes, it is to show that electronics is a fascinating subject. It is one of humankinds greatest inventions and we have only just started to exploit its full capabilities. Product designers are particularly lucky that they do not have to worry about technical details of electronic design, but can instead concentrate on the shape, form, function and style of the product. However, armed with the broad coverage of electronics given in this module, product designers will be far better equipped to innovate and design products to suit user needs in the future.
Total internal reflection Digital signals, analogue-digital conversion Feedback and control Fourier series; time and frequency domain representations of signals However, fear not because these are treated at a very descriptive level. They cannot be avoided though; the mathematics of Fourier series is essential in understanding the nature of distortion in a Hi-Fi system or how digital TV works. And some knowledge of wave propagation is essential for understanding why wireless networks use certain frequencies whilst satellite TV uses others. 1 Moores Law and system-on-chip It is well known that in the business of consumer electronics, customers generally get (and, indeed, expect) MORE FEATURES for LESS MONEY as technology advances. The key to this is the continual and rapid development of silicon technology, allowing more and more transistors to be incorporated on a single chip. Gordon Moore, a co-founder of Intel, predicted in 1965 that the number of transistors on a chip could double every year. This famous prediction has developed into Moores Law, which is an empirical law that accurately charts technological progress in the microelectronics industry. Figure 1 shows a graph from Intel that charts this evolution of technology. However, it should be emphasised that this is plotted on a logarithmic scale, which tends to underplay this dramatic development of computer technology. Re-plotting the data in Figure 2 on a linear scale shows, convincingly, that we only recently entered the information age. By putting more transistors onto a single chip, clearly a given product will require less chips and less associated components on a circuit board. This, allied with the globalisation of the electronics manufacturing business, as illustrated in Figure 3, is why consumers have become accustomed to cheaper and better products every year.

Figure 1 An Intel graph of processor complexity vs. year, illustrating Moores Law. Copyright Intel Corp. The milestone of 2 billion transistors was reached in 2008.
The underlying physical and mathematical principles that are relied upon in some of the sections include:Wavelength; frequency spectrum Semiconductors Interference, standing waves, diffraction I. D. Robertson I. D. Robertson 2009 2
Figure 2 Intels same numbers on a linear scale
Figure 4 A simplified timeline of developments in consumer electronics Figure 3 Diagrammatic representation of how consumer electronics has become so affordable 2 A brief timeline of consumer electronics We only recently entered the information age is a bold claim that requires substantiation. A worthy method of investigating the claim is to briefly study the history of consumer electronics and develop a timeline of how the main audio, video and communications products have developed. Figure 4 shows a simplified timeline of some of the most important developments in communications, radio and television. The telephone came first, around 1876, followed by the Gramophone in 1887. Audio recording had been demonstrated before, most notably by Thomas Edison with his cylinder-based Phonograph, but it was in 1887 that Emile Berliner patented the disc-based machine (the Gramophone) that is similar to what we know today. Broadcasting has its roots in Marconis successful demonstration of radio communications across the Atlantic in 1901. Radio broadcasting became established in the 1920s and TV started appearing shortly after John Logie Bairds demonstration of an electromechanical television in 1926. It was American inventor Philo Taylor Farnsworth who invented the electronic scanning system familiar today a couple of years later. He was awarded a string of patents, which he later sold to RCA, which became a giant in the world of TV and radio. The RCA name is now owned by Thomson (France). The 50s, 60s and 70s saw extensive development of colour television and recording and the first portable audio products. The mobile telephone has its origins in Motorolas radiotelephone of 1946. It was not until 1983 that the worlds first cellular phone was introduced by Motorola, and in 1991 GSM phones were introduced a digital system with greatly enhanced speech quality. Although personal computers were available about a decade before, GSM phones were one of the first consumer products that used digital electronics to perform real-time processing of signals. The 1990s can therefore be considered (debatably) the start of the digital consumer product revolution, with the DVD player (1996) and portable MP3 player (1998) appearing in the same decade. In the short time since, companies have developed multifunction handheld devices with cellular and internet connectivity, voice-directed navigation, games, and audio and video playback. 3 Dimensions of electronic devices The kind of electronics usually encountered in school or college will typically use breadboards for prototyping and students will plug in transistors, resistors, capacitors and maybe simple integrated circuits. Typical projects such as flashing LED circuits and crystal radios may be highly educational but dont always create enough enthusiasm for students to aspire to a career in electronic engineering. In recent years, learning electronics has become much more fun thanks to the advent of the microcontroller and a host of hands-on robotics experiments. Still, however, working with microcontrollers on prototyping boards fails to convey just how amazing modern electronics has become. Modern processor chips can have more than one Billion transistors, each with dimensions smaller than 50nm. For those not familiar with the letter prefixes for SI units, nm stands for nanometres. Table 1 lists the most common prefixes, from T for Tera (a million million) to a for Atto (a millionth of a millionth of a millionth). To show just how remarkable a modern transistor is, Figure 5 compares its size with the dimensions of various common things. For another way to gain an appreciation of just how complicated a modern silicon chip is, imagine the components on the chip were scaled up to the size of some everyday object: If the transistors were houses and the tracks connecting them together were roads, a state-of-the-art microprocessor would be more complex than the whole of the US built environment of cities, roads and towns!

I. D. Robertson 2009

Table 1 Commonly-used prefixes for SI units (1000) 10 (i.e. 1) 10-2 10-3 (0.001) 10-6 10-9 10-12 10-15
1 0.01 0.001 0.000001 0.000000001 0.000000000001 0.000000000000001
Tera Giga Mega Kilo centi milli micro nano pico femto
T G M k (lower case) c m n p f a
10-18 0.000000000000000001 atto There is a full set at http://physics.nist.gov/cuu/Units/prefixes.html

size /metres

Printed circuit board track

nm transistor

Human hair e-coli bacterium Rhino virus (common cold) Carbon nanotube diameter Hydrogen atom
Figure 6 Frequency, wavelength and terminology for various applications of electromagnetic waves 5 The multidisciplinary nature of electronic product design As mentioned earlier, a state-of-the-art integrated circuit is more complex than the whole US road network. It is not difficult to justify the claim, therefore, that electronic engineering is one of the most challenging careers of all. In this subject, it is necessary to cope with exceptionally rapid technological change. It is taken for granted that electronic engineers also have computer skills, scientific analysis, maths, practical skills, common-sense, and some artistic tendencies. It will become evident throughout this module that modern electronic products, such as cellular mobile handsets, are extremely complex. As a result, teams of people are required at all levels of design. It will also become clear that, in many cases, products from competing manufacturers may have essentially the same electronics inside. The iconic iPod serves to illustrate the new phenomenon that, notwithstanding the need for high technology electronic circuits, it is often the skill and flair of the product designers that make the difference between a product succeeding or failing in the marketplace. The iPod was perhaps one of the first of a new generation of products that consumers felt they had to own, simply because it looked so cool.

Proton

Figure 5 A comparison of the dimensions of various common things (logarithmic scale) 4 The electromagnetic spectrum Electromagnetic waves are vital to almost all communications systems and modern consumer products. Radio waves, infrared, visible light, UV radiation and X-rays are all forms of the same phenomenon of electromagnetic wave propagation. Some of the most important frequency bands and applications of the electromagnetic spectrum are shown in Figure 6. This is, once again, on a logarithmic scale: X-rays have a frequency around a billion times the frequency of a mobile phone radio signal. Of course, not all these frequencies can be generated easily (if at all) by conventional transistor-based electronics. High power microwaves, for example, are generated in a magnetron for cooking. Light, for optical storage and communications, is generated by a laser. Wavelength () is inversely proportional to frequency; assuming free space propagation the relationship c=f can be used where c is the speed of light in vacuo. The speed of light, c, is one of the most important physical constants in the Universe and is exactly 299,792,458 meters per second. This exactness has been achieved by modifying slightly the definition of other SI units, such as the metre. I. D. Robertson 2009 5

Figure 7 The 2008 iPod family Apple Computer Inc
5.1 The knowledge pyramid Developing this idea of a multidisciplinary team further, consider the different aspects involved in the design of an MP3 player, from the integrated circuits themselves through to the finished product:Semiconductor physics: Solid state MP3 players would not be sought-after products if they could not store huge libraries of music. Advanced semiconductor processing needed to be developed for many years to enable Gigabyte levels of storage to be economical. Such high density memory requires considerable understanding of underlying physics in the device to make such miniaturisation work properly. Microelectronics and packaging: To realise such compact products has pushed circuit integration levels and packaging technology to the limit. In school you might encounter 8- or 16-pin dual-inline chip packages. In modern product design you are more likely to encounter 4000-pin ball-grid array packages that push printed circuit board production and soldering to the limit. Understanding the fluid mechanics involved in solder flow, for example, has been essential in increasing package densities to the required level. Full colour displays: The standard colour LCD display employs liquid crystals, transparent electrodes, and transistors fabricated on glass panels. It took many years of development to make them so clear and bright. And yet, there is every chance that one day you may be reading this on a roll-up colour display based on electronic ink. Digital representation of analogue signals: music is analogue; the sound from an instrument creates a continuously-varying voltage waveform at the output of a microphone. However, modern file storage and processing is digital and the music must be converted to a binary (ones and zeros) representation. Expertise is required therefore to design analogue-to-digital and digital-to-analogue converters, and deal with optimum sampling rates and data formats. Data compression: The number of songs that can be stored is approximately 10X larger if MPEG compression technology is employed. This means that powerful mathematical algorithms must be somehow implemented on the silicon chip. When playing a track, the compressed MP3 file must be converted back to digital audio samples in real time. Embedded systems design: Electronic engineers are needed to expertly design an integrated system-on-chip solution, and engineers at the electronics/computing interface are required to perform low-level programming for interfacing blocks together. At a higher level, a programmer needs to implement the user interface and menu, whilst using a minimum of chip resources (programme memory, etc). Industrial product design: This part of the design task is about the style and ergonomics of the product. The designer needs a thorough knowledge of materials and manufacturing processes in order to create a stylish design that is economical to produce. Design for manufacturability (DFM) and design for the environment (DFE) are important themes of this activity. The designer needs to consider how the whole ensemble of electronic and mechanical components can be assembled, and even how it can be disassembled for recycling of key parts and materials. This part of the design process will also involve mechanical engineers and production engineers.

This overview has just scratched the surface of everything that is involved in designing an MP3 player and taking it into production. However, even from this overview it should be obvious that no one person has all the skills needed to accomplish the task. In fact, everyone involved in the design needs to be an expert in his or her specialist field. But, as we specialise more we find we start to know everything about nothing: In other words, an inevitable aspect of becoming a world expert in (say) semiconductor physics is that the brain has no capacity left to know much about the details of (say) the MPEG compression algorithms. This concept is summarised in the pyramid of knowledge illustrated in Figure 8. This phenomenon is probably the source of the myth of the absent-minded Professor, although there is some truth in it since focussing too hard, or for too long, on a single very advanced technical problem can definitely cause a person to lose a grip on reality!
Figure 8 The pyramid of knowledge applied to the design of an MP3 player or similar electronic product 6 The consumer electronics business The consumer electronics business is extremely competitive; customers now demand better and better products every year and expect the price to fall. The need for standardisation makes it difficult to introduce any new medium without extensive industry-wide consultations; format wars like VHS vs. Betamax, Blu-Ray vs. HD-DVD, and 8mm vs. VHS-C can be extremely damaging. Competing companies might lower their prices below an economically-viable level to encourage consumers to adopt their standard. Sooner or later, there have to be winners and losers; sometimes it is the technically superior technology that loses. Fortunately, with wireless communications standards there is some government control because of spectrum regulation: Thanks to the tireless efforts of engineers on committees (especially those of the IEEE The Institute of Electrical and Electronics Engineers, Inc.) there is a high degree of standardisation. However, this is never a straightforward process as licensing fees for crucial technologies might encourage bigger companies to develop proprietary standards of their own. Consumer electronics is a tough business but, on the other hand, it can also be extremely profitable. In 2006, the top ten consumer electronics companies were, in alphabetical order; Alps, LG, Matsushita, Philips, Pioneer, Samsung, Sanyo, Sharp, Sony and Toshiba. Samsung, the biggest, had sales of 45Bn and an operating profit of almost 5Bn [Samsung Electronics Annual Report 2006]. Add to these companies many other familiar names like Apple, Intel, Motorola, Westinghouse, Hewlett Packard, Dell, RCA/Thomson and Polaroid. Then, consider the rise of Chinese companies: there are many big Chinese companies (e.g. Panda Electronics, Changhong, BOE) that carry out manufacturing for the aforementioned companies. There are many others that

design and manufacture products that are then badged by other, better-known, brands for retail. Some of the notable manufacturers are Alco, Nam Tai, Elite, WKK Holdings, Wongs, SMT, Whitways, and Computime. As an indication of the scale of this business, more than 100 million DVD players were manufactured in China in 2006, a large proportion of them badge-engineered. There is an increasing trend for companies based in South East Asia to develop their own brand in the retail marketplace, with companies including Lenovo, Haier, Xcute, Ningbo BIRD, Lite-On, Skyworth, Amoi, SVA and BenQ leading the way. In 2006, Samsungs most profitable division, by a considerable margin, was the semiconductor manufacturing one. It is important, therefore, not to concentrate only on the big name brands, but also to know which companies are the leaders in semiconductor chip design and manufacturing as well. China is an enormous powerhouse of electronics manufacturing and Table 2 lists the top 10 suppliers of semiconductor chips into the China EMS (Electronics Manufacturing Service) industry. In semiconductor chips alone, the Chinese EMS market was worth >$20Bn in 2005 and the total value of the Chinese EMS industry in 2007 was estimated to be over $70Bn. Taiwan has great strength in semiconductor and component manufacturing and two of the largest silicon manufacturing businesses UMC and TSMC - are based there. UMC and TSMC specialise in manufacturing wafers for other companies. This highlights the fact that there are several business models in the electronic product design and manufacture business:Vertically integrated company; this is the traditional model where a large company makes everything from the semiconductor devices to the branded consumer products Contract manufacturer (EMS); this is a company that concentrates solely on providing an electronics manufacturing service for its customers. OEM; An Original Equipment Manufacturer builds components and assemblies that are supplied to another company that assembles them into a complete product. ODM; An Original Design Manufacturer designs and manufactures a product that is then sold under another brand name. This is often referred to as badge engineering. Chip manufacturer; A company that specialises is designing sophisticated high-value integrated circuits (ICs) and manufacturers them for sale as components. Fabless design house; A company that specialises in designing ICs and supplies them as components, but subcontracts out the chip manufacture itself. Chipless design house; A company which has design techniques that are sufficiently novel for other companies to want to pay to use them in their own chip designs. The UK-based company ARM is the best example of this; ARMs processors are used in a vast number of consumer products but they supply the design, which is then integrated within a larger system-on-chip by the customer. Foundry; A company that carries out semiconductor manufacturing for customers but does not necessarily design products of its own.

Table 2. The top ten semiconductor suppliers to the China EMS industry. iSupply Corp. 2006, used with permission. 2005 Revenue $M 1 Intel 5,Texas Instruments 2,STMicroelectronics 1,Samsung Electronics 1,Philips Semiconductors* 1,Toshiba 1,Hynix 1,Freescale Semiconductor 1,Infineon Technologies 1,Micron Technology 704 * NXP was established in 2006
7 Product teardowns reverse engineering Reverse engineering means taking a competing product apart and finding out, in detail, how it works and how it was built. There are a number of reasons for wanting to do this; firstly, within the limits of the law, you can gain valuable ideas about how to improve your own design. Secondly, you can find out who your competitor does business with - who they buy their chips and other components from. Knowing this will help you choose your own business partners and improve your competitiveness. Finally, by studying the competitors product you can find out whether any of your protected ideas have been illegally copied. This last point is particularly important since intellectual property (IP) is one of the most prized assets of a high technology company. As a result, the information from teardowns has considerable commercial value. However, to fully reverse engineer a product is extremely timeconsuming and so it is best left to one of those companies that specialise purely in this teardown business, such as Portelligent, Semiconductor Insights, and iSupply. The information that is supplied in a product teardown from iSupply includes:Complete parts list & component count (product Bill of Materials) Detailed manufacturing cost analysis Block diagram Detailed step-by-step disassembly in high-resolution color photographs Power measurements Circuit board & packaging metrics Product specification sheet Interesting electronic features and packaging concepts Figure 9 shows a screenshot of part of an iSupply teardown report: The typical cost of a 40 page product teardown is $5000. However, many products will use highly-integrated dedicated ICs. So, to properly study the product may require complete reverse engineering of the chip itself; the integrated circuit will be stripped down in a cleanroom, layer-by-layer, and the circuit diagram painstakingly re-created. Only then is it possible to establish whether the competitors chip infringes on your own intellectual property.

Some Internet Links

This list is still in its infancy. If you find any other good ones, please let me know. www.howstuffworks.com Excellent guide to how many things work, at a simple level. Record-breaking number of pop-ups. Beware! http://physicsweb.org/resources//Education/Interactive_experiments/Optics/ Diffraction demo http://www.universityphysics.com/ Various physics explanations http://www.ieee-virtual-museum.org/ Let's Get Small: The Shrinking World of Microelectronics Microwaves: From Your Kitchen to the Edges of the Universe http://www.ce.org Consumer Electronics Association; US based Heavily involved with standards and US Government policy http://www.homecinemachoice.com/ Masses of articles on TV/audio, aimed at the consumer. http://www.whathifi.com http://www.techonline.com/ Requires registration; mostly more advanced info on things like Bluetooth http://www.audiovideo101.com useful dictionary of terms http://www.london-fire.gov.uk/fire_safety/recalls/ Surprisingly long list of electronic goods that may pose a fire risk and have been recalled! http://www.datapro.net/ Connector and cable supplier; lots of info on video and audio connectors and signal formats. Handy list of PAL/NTSC/SECAM by Country. http://www.microcinema.com Some info about DVD player compatibility for PAL/NTSC http://www.flattvpeople.com/tutorials/lcd-vs-plasma.asp Comparison of LCD and Plasma TV practicalities http://www.pctechguide.com/index.htm Excellent guide to PCs, digital cameras, scanners, etc.

Figure 9 Screenshot of an iSupply teardown report. Courtesy of iSupply, all rights reserved.
Figure 10 Part of a bill of materials (BOM) summary from iSupply, Courtesy of iSupply, all rights reserved.
www.discovercircuits.com www.intel.com History of Intel microprocessors. Info about fabrication technology.
BOOKS for further reading
Recommended Texts Category B 1. The Digital Consumer Technology Handbook
- A Comprehensive Guide to Devices, Standards, Future Directions, and Programmable Logic Solutions
ISBN: 0-7506-7815-1 Author: Amit Dhir Publisher, Newnes (Elsevier), 2004 2. Consumer Electronics for Engineers ISBN 0-521-588170 Author: Hoff Publisher, Cambridge University Press Other books in the Edward Boyle Library Level 11 Television fundamentals John Watkinson. Oxford : Focal Press, 1994. Digital video broadcasting : technology, standards, and regulations Ronald de Bruin, Jan Smits. Boston, Mass. : Artech House, c1999. Basic TV technology Robert L. Hartwig. Oxford : Focal, 2000. Colour television theory : system principles, engineering practice and applied technology Geoffrey H. Hutson, Peter J. Shepherd and W.S. James Brice. London : McGraw-Hill, c1989, 2nd ed. Automotive electrics and electronics Warrendale, PA : SAE Society of Automotive Engineers, 1999 Stuttgart : R. Bosch. 3rd ed. EBL 11 Mechanical Engineering E-7 BAU Hillier's fundamentals of automotive electronics V.A.W. Hillier. Cheltenham : Stanley Thornes, 1996. 2nd ed. EBL 11 Mechanical Engineering E-7 HIL Coding, communications, and broadcasting edited by Paddy Farrell, Michael Darnell and Bahram Honary. Published Baldock : Research Studies Press, c2000 Newnes audio & hi-fi engineer's pocket book Vivian Capel. Published Oxford : Newnes, 1994. 3rd ed Muncaster, Roger. A-level physics / Roger Muncaster. Published Cheltenham : Stanley Thornes, c1989. 3rd ed. EBL 11 Physics A-1 MUN Convergence technologies for 3G networks : IP, UMTS, EGPRS and ATM Jeffrey Bannister, Paul Mather, Sebastian Coope. Published Chichester : Wiley, 2004.

A004170 A069960 A028150 A008770 A111770 A005380 A000270 A012330 A033530 A015750 A105560 A086790 A005280 A000810 A029780 A016360 A009540 A010140 A006360 A003490 A001120 A047050 A010120 A004020 A010130 A010520 A051910 A011170 A009830 A010060 A096770

Shinsegae

Hyundai Dept Store
GSHS Hotel Shilla Youngone Corp HMC Kia Hyundai Mobis Sejong Ind Sungwoo Hitech KB Financial HFG Busan Bank Samsung F&M Samsung Card Samsung Securities HHI SHI GS E&C KAL LG International Daewoo International LSIS Hyundai Steel Korean Zinc Hyundai Hysco LG Chem Honam Petrochem Hanwha Chem OCI SK Energy
Buy Buy Hold Buy Buy Buy Buy Buy Hold Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Buy Buy Buy
A005930 A036490 A066570 A006400 A007660
SEC OCI Materials LGE Samsung SDI Isupetasys

Buy Buy Buy Buy Buy

Note 1: As of Aug 12 2: Overweight: Consumer cyclicals, auto, banking, securities/insurance, shipbuilding, chemical/materials, steel/metal, energy, IT hardware/SW, semiconductor/equipment Underweight: Construction/machinery, transportation/holding co, utility, telecom service, consumer stapes, healthcare 3. * Newly added: N/A Excluded: N/A
Changes in model portfolio
Model portfolios weighting relative to benchmark
(%p) 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 3.4 2.0 1.6 1.6 1.3 1.0 0.4 0.3 0.3 0.2 -0.5

Consumer staples

-2.5 -3.9
Construction/machinery Telecom service

Banking

Securities/insurance

Shipbuilding

Transportation/holding co.

Semiconductor/equipment

Chemical/materials

Consumer cyclicals

Healthcare

IT HW/SW

Source: KRX, Woori I&S Research Center
Model portfolios cumulative return
(%) 0 '09.1 '09.3 '09.6 '09.9 '09.12 '10.3 '10.6 (2005. 8. 2=100) 80
Compared to BM(LHS) KOSPI 200(RHS) MP(RHS)

Steel/metal

Energy

Utility

I. Market driver (1)
Corrections averaged 4.5% in 2010
Lawrence Kim (822-768-7574)
Despite corrections due to domestic and external negatives in 2010, the market bounced back and continued to rally. We forecast future Kospi trends from recent corrections as similar negatives have affected the market throughout 2010. During corrections in 2010 due to domestic and external negatives, the stock market has fallen between 0.7~10.9%, with an average correction of 4.5% and duration of 6.5 days. Given the average correction, we estimate the Kospi to bottom at 1,700p, after falling 3.4%. Of note, the Kospi shed 8% on average during prolonged corrections (US banking regulation and concerns over Chinas tightening at end-January, Southern European risks at end-April, concerns over the economic downturn of developed countries at end-June). However, future corrections may turn out less severe as: 1) the duration of corrections is shortening; 2) corrections in emerging markets are less severe than those in developed markets; 3) the market has grown less sensitive to negatives; and 4) concerns over a global downturn have largely been priced in.

1. Domestic and external negatives in 2010 and their impacts on the stock market: Stock market correction ranging between 0.7% and 10.9% (average: 4.5%, period: 6.5days)
Date 01.22~02.08 Negative US government announced banking regulatory reforms; China tightening Rumor of construction sector default Concerns over deteriorating fiscal crisis at PIIGS countries; concerns over disruption of Kumho Group restructuring Chg (%) -9.8 Period 13 days Date 05.04~05.06 Negative US stock market below 10,000p-line; spreading fiscal deficit crisis in Europe raised concerns over economic recession Germany bans naked short-selling; North Korea strongly denied any involvement in sinking of Cheonan navy vessel South Korean president announced statement regarding Cheonan navy vessel incident; North Korean media reported battle-ready North Korean military; nationalization of troubled banks in Spain Concerns over weakening recovery momentum for global economy; G20 summit announced commitment to cut budget deficit; China revised down LEI Moodys downgraded credit ratings on five local governments in Spain; rising concerns over global economy following weak economic indicators in US and China Concerns over global economic downturn due to prediction of economic downturn in US and Chinas slowing industrial output growth Concerns over global economic downturn grow on US FRBs comment on additional stimulus package and sluggish Chinese economic indicators Chg (%) -4.1 Period 3days

02.05~02.08

3 days

05.24~05.25

2 days
FRB announced discount rate hike KB Financial suffered large-scale losses on derivatives; concerns over global fiscal deficit crisis stemmed from Europe S&P downgraded sovereign credit rating on Greece and Portugal by 2~3 notches, increasing fiscal deficit risk Federal prosecutors began investigation into Goldman Sachs; China raised deposit reserve ratio; rumors of Doosan E&C liquidity crisis

06.29~07.05

5 days

04.28~05.25

20 days

07.15~07.19

08.10~08.12
Source: Woori I&S Research Center
2. Stock market correction following massive risks: 2.3~15.6%, avg: 9.8%, Korean avg: 8.0%, duration: 12 trading days

Issue US banking reform & Chinese tightening (end-January) Greater fiscal risk in southern Europe (end-April) Concerns over global economic downturn (end-June) Average
Source: Bloomberg, Woori I&S Research Center
KOSPI -9.8 -10.9 -3.3 -8.0
S&P 500 -8.1 -13.7 -8.5 -10.1
DAX 30 -9.1 -10.5 -7.6 -9.0
Nikkei225 -8.6 -15.6 -10.2 -11.5
CAC 40 -11.1 -16.7 -10.8 -12.9
Shanghai -9.6 -11.7 -8.6 -10.0
India BS30 -9.0 -9.7 -2.3 -7.0

II. Market driver (2)

Global volatility factors rising

Jun Hong (822-768-7583)

The Kospi is pulling back again after breaking through a stagnant range. Investors fears are evident from the increase in volatility indicators in August. In addition, CDS premiums are increasing not only for European nations suffering from fiscal deficits, but also for advanced and most Asian countries. VIX and VKOSPI, gauges of stock market volatility, have been on the rise since August. With the 2Q earnings season coming to an end, we believe that concerns over 3Q earnings and uncertainty over macro variables will negatively impact the stock market in the near term. Moreover, the commodity market is emerging as a new global risk factor, as wheat prices surge following the export ban by Russia, which is similar to the agflation in 2007 and 2008. Fortunately, however, other commodity prices are yet to be a cause for concernie, oil and major industrial commodities. In addition, wheat prices have somewhat slowed since August.
Global stock markets pull back sharply in August
(2010.7.1=100) 95 7/01 7/08 7/15 7/22 7/29 8/05 8/12 US Korea Germany China

Volatility rising

(index) 15 7/01 7/08 7/15 7/22 7/29 8/05 8/12 VIX VKOSPI FTSE100 volatility index
Global earnings momentum loses traction
(%) 0 -1 -2 '10.1 '10.2 '10.3 '10.4 '10.5 '10.6 '10.7 '10.8 World DM EM
Commodity prices slow somewhat
(2010.7.1=100) 95 7/01 7/08 7/15 7/22 7/29 8/05 8/12 WTI Copper Gold Wheat Corn Soybean

III. Market data for last week

Market data

Market index (MSCI basis) Europe EM Europe Pacific EM Asia North America Forex Won/dollar Yen/dollar Dollar/euro Dollar Index Interest rate US treasury bond 10yr US Moodys BAA KR treasury bond 3yr KR corp bond BBB Commodities CRB DRAM WTIC This wk 1 wk ago 2 wk ago 3 wk ago 4-wk avg (%) -5.63 -0.52 0.01 2.74 -0.85 -5.23 -0.84 0.31 3.57 -0.55 -4.08 2.00 1.17 1.20 0.07 -4.04 0.38 0.53 2.87 -0.06 -4.01 -0.28 -1.13 2.91 -0.63 1,183.80 1,161.80 1,182.70 1,198.80 1,181.78 86.07 85.15 86.57 87.41 86.30 1.2845 * 1.3292 1.3028 1.2818 1.2996 82.63 * 80.41 81.54 82.46 81.76 (%) 2.68 * 2.82 2.91 3.00 2.85 5.75 * 5.80 5.85 5.97 5.84 3.80 3.89 3.80 3.82 3.83 10.68 10.77 10.70 10.71 10.72 ($) 268.91 * 274.71 274.35 266.62 271.15 2.31 * 2.31 2.31 2.31 2.31 75.74 * 80.70 78.95 78.98 78.59
US & Korea credit spread
(%p) '09.1 '09.5 '09.9 '10.1 '10.5 USA (Moody's BAA-TB 10Yr.) Korea (Corp. Bond BBB-TB 3Yr.)
Source: Moodys, US Treasury, KOFIA, Thomson Reuters
Philadelphia Semiconductor Index & DRAM
(USD) 3.0 1G DDR2 1Gb(128x8) 667Mhz (LHS) Philadelphia semiconductor index (RHS) (index) 150 '09.1 '09.5 '09.10 '10.2 '10.7
Note: * denotes figures based on Thursday of the previous week

Korea market indicator

This wk 1 wk ago 2 wk ago 3 wk ago 4-wk avg KOSPI (p) 1,746.24 1,783.83 1,759.33 1,758.06 1,761.87 Trading volume (000) 320,871 337,796 345,001 347,834 337,876 Trading value (bn) 48,641 58,277 54,077 58,927 54,981 Customer deposit (bn) 140,580 * 136,335 136,440 137,551 137,727 Real customer deposit (bn) 441 * -409 -584 -28 -145 Equity-type (bn) 66,778 * 66,905 67,374 68,395 67,363 Bond-type (bn) 51,777 * 51,507 50,983 50,446 51,178
Note: * denotes figures based on Wednesday of the previous week. Trading value is based on weekly average Note: ** denotes figures based on Thursday of the previous week

2.5 2.0 1.5 1.0 0.5 0.0

Source: CRB, FnGuide, Thomson Reuters
Won/dollar vs dollar index

($) 70 '09.1 '09.5 '09.10 '10.2 '10.7 Dollar index (RHS) Won/USD (RHS) (Won/USD) 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900
Cumulative real customer deposit & equity-type funds
(Wtn) '09.1 '09.4 '09.7 '09.10 '10.1 '10.4 '10.7 Cumulative real customer deposits (LHS) Equity type (RHS) (Wtn) 60
Note: Dollar Index = US $ Major Currency Mar 73= 100 (FED) Source: FRB, Thomson Reuters
Note: Real customers deposits = deposits - net retail buying (2 days ago) Source: AMAK, Woori I&S Research Center
IV. Southern European fiscal deficit crisis overview
Date '09.10.4 '09.10.20 '09.10.22 '09.11.8 '09.12.8 '09.12.14 '09.12.16 '09.12.22 '10.1.7 '10.1.14 '10.2.2 '10.2.3 '10.2.11 '10.3.3 '10.3.11 '10.3.25 '10.4.9 '10.4.12 '10.4.15 '10.4.23 '10.4.26 '10.4.27 '10.4.28 '10.4.30 '10.5.2 '10.5.4 '10.5.6 '10.5.7 '10.5.9 '10.5.11 '10.5.12 '10.5.13 '10.5.14 '10.5.16 '10.5.18 '10.5.19 Issue Greece: General election Greece: Fiscal deficit issue raised Greece: Credit rating downgrade (Fitch) Greece: Austerity measures announced Greece: Further credit rating downgrade (Fitch) Greece: Second austerity measures Greece: Credit rating downgrade (S&P) Greece: Credit rating downgrade (Moody's) EU demands Greece cut fiscal deficit Greece: Third austerity measures Greece: Labor union announces strike EU approves Greek plan to reduce fiscal deficit EU agrees on support measures for Greece Greece: Fourth austerity measures announced Protests against Greek fiscal tightening EU agrees to support Greece Fitch downgrades Greeces sovereign rating EU discusses bailout plans for Greece EU agrees on bailout Moodys downgrades Greeces sovereign rating Greece asks IMF and eurozone for bailout S&P downgrades Greek debt rating S&P downgrades Spains sovereign rating Moodys cuts credit ratings for nine Greek banks Eurozone and IMF agree on bailouts for Greece Greeces public labor union opts to strike Rumors of IMF bailout for Spain spread Spain issues sovereign debt of EUR2.3bn EU approves bailout plan for Greece Portugal plans to reduce fiscal deficit Greece seeks EU-IMF bailout Greece announces 1Q growth of -0.8%, IMF offers support; Spain announces fiscal tightening Greece: February jobless rate 12.1%; Portugal announces move to reduce fiscal deficit Discussion to address Greek fiscal crisis; Spains first deflation since 1986 Greece: protest against tightening EU bails out Greece; Spain issues EUR6.4bn in treasuries, vs EUR 8.0bn target Greece: Paid treasuries worth EUR8.5bn Spain: Wealth tax hike announced Detail Early general election PASOK (central left party) wins election 2009 fiscal deficit at 12.7% of GDP Fitch downgrades Greeces sovereign credit rating from A to AFinal budget plan fiscal deficit to be lowered to 8.7% of GDP in 2010 Fitch downgrades Greeces sovereign credit rating from A- to BBB+ Including 10% cut in social welfare spending S&P downgrades Greeces sovereign credit rating from A- to BBB+ Moodys downgrades Greeces sovereign credit rating from A1 to A2 EU demands Greece comes up with more detailed plan to reduce deficit Fiscal status improvement plan announced (fiscal deficit reduced to 2.8% of GDP till 2012) Wage freeze on public jobs paying less than EUR2,000/month labor union calls general strike Greece offers stricter austerity plan: Oil tax hike, wage freeze on all public workers to reduce deficit EU announces agreement on measures to resolve Greek fiscal crisis Greece comes up with additional reduction measures (EUR4.8bn) to gain confidence of eurozone and investors; VAT raised from 19% to 21%/30% special bonus reduction on public workers/wage freeze in 2010/additional 8% hike in oil tax/additional tobacco and liquor tax hikes 50,000 people protest against government plans for fiscal tightening Bailout plans for Greece agreed to at eurozone summit Fitch downgrades Greeces sovereign rating from BBB+ to BBB16 eurozone finance ministers discuss specifics of bailout plans Eurozone and IMF agree to bailout of EUR45bn (US$61bn) for lower than market interest rates Moodys downgrades Greeces sovereign rating from A2 to A3, and further downgrade likely Greece asks for EUR45bn to repay EUR20bn in foreign debt expiring in two months S&P downgrades Greek sovereign debt to junk bond grade Sovereign rating downgraded from AAA to AACredit ratings for nine Greek banks downgraded due to vulnerability to economic recession Eurozone and IMF agree to bailout of EUR110bn for Greece over next three years Greeces ADEDY (public labor union; 500,000 members) opts for strike Spains stock market pulls back more than 5% on rumors it will apply for IMF bailout of EUR280bn Spain issues five-year sovereign debt of EUR2.3bn with competition rate of 2.3:1 German parliament approves bailout for Greece (EUR22.4bn over three years); Hollands parliament approves loans of EUR4.7bn Portugals prime minister reveals that it would reduce 2010 fiscal deficits to 7.3% of GDP Partial bailout of EUR20bn Growth falls as tax rises to narrow gap vs EUs fiscal spending reduction plan; IMF bailout for Greece EUR5.5bn; Spains fiscal tightening (EUR15bn) by cutting public servant wages 5% Greek stats office (HAS) says February unemployed at 605,277; jobless rate up 3.0% y-y to 12.1%; Portugal plans to reduce 2011 fiscal deficit to 4.6% of GDP (down 2%p from previous plan) G7 discusses overall market conditions after comprehensive support measures (US$1tn); European stock market down 3.5%, US 2%; Spains inflation negative (March inflation -0.1% y-y) Protest led by labor union under communist party; opposes tightening, including pension reform First batch of bailout (EUR14.5bn); EUR6.4bn (12M, 18M treas) issued, far lower than initial target of EUR8.0bn Paid maturing 10yr treasuries EUR8.5bn (US$10.5bn) using bailout from EU and IMF Spain decides to raise tax on high-income bracket

Date '10.5.20 Issue Greece: Two major labor unions go on concurrent strike for fourth time in 2010 Spain: EUR15bn austerity plan confirmed Germany signs bill supporting Greece Spain nationalizes savings bank Spains Parliament passes monetary tightening bill Fitch downgrade sovereign credit rating on Spain Greece: Privatization plan on government-owned companies Spain: Plan to announce labor reform plan on Jun 16 Fiscal crisis emerges in Hungary and Italy Germany: Fiscal budget cut by EUR80bn by 2014 Hungary: New austerity measures confirmed France: Austerity plan (reduction by EUR100bn s over three years) Greece: Further credit rating downgrade by Moody's Spain: Successful EUR3.5bn government bond issuance Japan: JPY200bn loaned to Greece Greece: CDS premium at historic high Greece announces plan to resume government bond bidding from July Greece: Two major labor unions begin strikes Moodys warned Spain of sovereign credit rating downgrade Spain: successfully issued EUR3.5bn in bonds Greece announces it outperformed 1H target for reducing fiscal deficit Spain successfully auctions 10yr treasury bonds Greeces two biggest labor unions go on general strike; Greece approves pension reform bill Greece succeeds in issuing first government bonds since financial bailout; Moodys downgrades Portugal Moodys downgrade Irelands sovereign rating Spain successfully issues sovereign debts of EUR6bn; Greece issues shortterm sovereign debt (13 week) EU bank stress test result released Greece largest bank issued subordinate bonds Spain issued 3M/6M treasuries Moodys warned sovereign rating downgrade of Spain Fitch provides negative credit rating for Spains four major local governments IMF and EU implies approval on secondary financial aid to Greece Detail Two major Greek labor unions go on 24-hours general strike in protest against governments austerity measures Spain: Austerity measures including 5% cut on public workers wage from Jun 1 and wage freeze on public workers in 2011 Eurozone member countries and IMF plan to provide bailout of EUR110bn to Greece over following three years, Germany will offer EUR22.4bn. Spains central bank decides to acquire CajaSur, savings bank run by roman catholic church (countrys No. 1 savings bank with assets of US$23.9bn and NPL of US$16.3bn) Bill to reduce fiscal spending by EUR15bn (5% cut for civil servants pensions, freezing pensions) passed at parliament Spains rating downgraded from AAA to AA+; negative outlook Greece: Disposal of 49% stake in subsidiary owned by Greek national railway (OSE), 39% in national post, and stakes in casinos EUR1bn per year which should be used to reduce fiscal deficit Spain: Labor reform plan (including wage cut) to be passed by Jun 16 Hungary: Government announced fiscal deficit would be worse than expected Italy: 10yr government bond yield up - 1.58%pt higher than German government bond yield Germany announces plans to raise tax revenue and reduce spending, including introduction of banking tax and air travel tax and cancellation of tax benefit on energy industry Banking tax imposition to meet fiscal deficit target; monthly wage cap on public sector; reduction of board members for government-owned companies Fiscal spending reduction by EUR50bn (public spending cut by EUR45.0bn; imposing omitted tax (EUR5.0bn) Moody's downgrades credit rating on Greece from A3 to Ba1 (down by four notches) Spains central bank managed to issue EUR3.5bn (US$4.3bn) worth of government bonds Japan announced plan to provide up to JPY200bn to Greece till 2012 via IMF CDS premium on 5yr Greek bonds up 21.23% d-d to 1125.81bp Greece to be back on global government bond market from next month; announced issuance of EUR4bn worth of government bonds Two major Greek labor unions started simultaneous strikes to protest governments fiscal austerity measures Moodys warns Spain of sovereign credit rating downgrade of at least two notches, based on deteriorating economic growth forecasts Spain successfully issues EUR3.5bn worth of government bonds (3.657% bond yield) Greece central banks fiscal deficit fell from EUR19bn to EUR11.45bn in 1H, beating its original target of 40% reduction Spain sells off approximately EUR6bn (US$8.05bn) worth of 10yr treasury bonds Sixth general strike since tightening measures were first introduced Pension reform bill key to fiscal reductionage for pension reduced to 60 for both men and women (from 60 for women and 65 for men), but contribution period extended from 37 years to 40 years Greece issues 6mn government bonds worth EUR1,625mn Moodys downgrades Portugals credit rating by two notches from AA2 to A1 citing reasons of weak fiscal standing and negative growth prospect Moodys downgraded Irelands credit rating from Aa1 to Aa2, citing the surge in sovereign debt-toGDP ratio Spain issued EUR6bn (US$7.8bn) of sovereign debt for lower yield (2.303%2.221%); Greece issued 13-week government bonds worth EUR1.95bn for yield of 4.05% (bidding rate of 3.85x) Of 91 European banks, 5 savings banks in Spain, 1 Greek bank, and 1 German bank failed stress tests; capital deficit of EUR3.5bn National Bank of Greece sold subordinate bonds worth EUR450mn Total of EUR3.4bn treasuries issued (Spain 3M treasuries worth EUR971.4mn, 6M EUR2.46bn, Moodys warns of downgrade from current Aaa A+ for Catalonia and Valencia, AA for Madrid, AAA for Basque County, and AA+ for Spain Announcement made after joint research team of IMF-EU Commission-ECB conducted in-depth review of Greece governments implementation of fiscal tightening and economic reform programs

CDS premium for US financials rising
(bp) '10.1 '10.3 '10.5 '10.100 Morgan Stanley(LHS) Goldman Sachs (RHS) (bp) 250 200

Source: Bloomberg

Europe also sensitive to global volatility increase
(bp) 0 '10.1 '10.3 '10.5 '10.7 France Germany United Kingdom
CDS premium for PIIGS rising again
(bp) '10.1 '10.3 '10.5 '10.7 Portugal(LHS) Ireland(LHS) Spain(LHS) Italy(LHS) Greece(RHS) (bp) 0
Asian CDS premium falls slightly, but relatively stable
(bp) '10.1 '10.3 '10.5 '10.(bp) 40
Sense of crisis reflected in Korean financials
(bp) 70 '10.1 '10.3 '10.5 '10.7 Woori Financial Group KB Holdings Hana financial Group Shinhan Financial Group
Korea (LHS) China(LHS) Japan(RHS)

2. Macro backdrop

US GDP grew 2.4% q-q in 2Q, vs 3.7% in 1Q. After the Fed officially acknowledged the USs economic slowdown, the 2010 GDP forecast was downgraded from 3.1% to 3.0%. As the European-led fiscal deficit crisis eases, the 2010 GDP forecast for the eurozone and Asia remains unchanged. Among emerging economies, Indonesias economic outlook has continued to be revised up since August, which is noteworthy. Based on solid domestic demand growth, Indonesias 2010 GDP growth rate was upgraded from 5.80% to 5.96% on Aug 4, and then to 5.98% on Aug 9. Chinas economic indicators for July imply overall growth is weakening. While industrial output rose 13.4% y-y in July, growth slowed m-m. Retail sales increased 17.9% y-y in July, slightly missing consensus (18.4%), due to Chinas aggressive property and lending regulations. Koreas seasonally adjusted jobless rate grew 0.2%p m-m to 3.7% in July due to: 1) an end to government projects in June; and 2) an increase in the economically active population. However, the private-led job recovery (manufacturing) is positive as jobs grew 658,000 y-y in July.
US 2010 GDP revised down from 3.1% to 3.0%
(% q-q, SAAR) 3.5 3.0 2.5 2.0 1.5 1.0 '09.1 '09.4 '09.7 '09.10 '10.1 '10.4 '10.7 U.S 2010 GDP
No change in eurozone including PIIGS estimates

(% y-y) 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 '09.1 '09.4 '09.7 '09.10 '10.1 '10.4 '10.7 Euro zone 2010 GDP Italy 2010 GDP Spain 2010 GDP United Kingdom 2010 GDP
No change in 2010 GDP estimates for Asia
(% y-y) '09.1 '09.4 '09.7 '09.10 '10.1 '10.4 '10.9 Korea 2010 GDP (LHS) Japan 2010 GDP (LHS) China 2010 GDP (RHS) 10 (%) 11
2010 GDP estimate for Indonesia revised up 0.18%p
(% y-y) 1 '09.1 '09.4 '09.7 '09.10 '10.1 '10.4 '10.7 Brazil 2010 GDP Russia 2010 GDP Indonesia 2010 GDP
Note: Indias estimate replaced with Indonesias due to lack of estimates for India Source: Bloomberg

US economic indicators

June industrial output up 8.2% y-y, up for 12th consecutive month
(% y-y) -5 -10 -15 '00.1 '02.1 '04.1 '06.1 '08.1 '10.65 (%) Industrial output (LSH) Utilization rate (RHS) 80 85
July ISM manufacturing index at 55.5, above neutral level of 50 for 12 straight months
(Basis=50) '08.6 '08.10 '09.2 '09.6 '09.10 '10.2 '10.6 55.5

Source: Federal Reserve

Source: ISM, Bloomberg
June retail sales up 4.9% y-y, but growth rate slows
(% y-y) -5 -10 -15 '00.1 '02.1 '04.1 '06.1 '08.1 '10.1 US retail sales US retail sales (excluding autos)

June CPI down 0.14% m-m

(% m-m) 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 '08.6 '08.10 '09.2 '09.6 '09.10 '10.2 '10.6 -0.14

Source: US Census Bureau

Source: BEA, Bloomberg
Weekly claims for jobless claims up 2,000 w-w
('000) '00.1 '02.1 '04.1 '06.1 '08.1 '10.1 US Initial Jobless Claims SA-4MA (LHS) S&P500 (RHS, reversed) (P) 1,000 1,200 1,400 1,600 1,800
July non-farm payroll down 131,000 m-m
('000 persons) -200 -400 -600 -800 -1,000 '08.7 '08.11 '09.3 '09.7 '09.11 '10.3 '10.7 -131
Source: Bureau of Labor Statistics, Bloomberg

Source: BLS, Bloomberg

European economic indicators
June industrial output falls 8.2% y-y, slowing m-m
(% y-y) -5 -10 -15 -20 -25 '00.1 '02.1 '04.1 '06.1 '08.1 '10.1 Eurozone industrial output Eurozone manufacturing operating ratio 60 (%) 90 85
May manufacturing orders up both m-m and y-y
(% m-m) -2 -4 -6 -8 -10 -12 -14 '07.1 '07.7 '08.1 '08.7 '09.1 '09.7 '10.1 Eurozone manufacturing order(m-m, LHS) Eurozone manufacturing order(y-y, RHS) (% y-y) -10 -20 -30 -40 -50
Source: European Communities
June retail sales up 0.4% y-y
(% y-y) -2 -4 -6 '07.6 '07.12 '08.6 '08.12 '09.6 '09.12 '10.6 Europe retail sales
June CPI displays moderate rise, increasing 1.7% y-y
(% y-y) -1 '08.7 '09.1 '09.7 '10.1 '10.7 1.7

Source: Eurostat

June jobless rate remained flat m-m at 10%
(%) 11.0 10.0 9.8.0 7.0 6.0 '00.1 '02.1 '04.1 '06.1 '08.1 '10.1 Eurozone labor cost(RHS) Eurozone jobless rate(LHS) 4 (%) 5
Trade deficit due to strong euro and increased import in May

(% y-y) -10 -20 -30 -40 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Eurozone export(LHS) Eurozone import(LHS) Dollar/euro rate(RHS) (dollar/euro) 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8
Note: Unit labor cost falls on improving productivity or nominal income decrease Source: European Communities
Source: European Communities, Bloomberg
Chinese economic indicators
July industrial output growth lowest in 11 months
(% y-y) '08.8 '08.11 '09.3 '09.6 '09.9 09.12 '10.4 '10.7 13.4
July PMI mfg index at 51.2, down for third straight month
(Index) 30 '05.5 '06.5 '07.5 '08.5 '09.5 '10.5 PMI manufacturing index PMI new order

Source: NBS

Source: China Federation of Logistics
July retail sales growth missed estimate (up 17.9% y-y)
(% y-y) '08.7 '09.1 '09.7 '10.1 '10.7 17.9
July CPI up 3.3% y-y; inflationary pressure builds
(% y-y) 0 -2 -4 '08.7 '08.11 '09.3 '09.7 '09.11 '10.3 '10.7 3.3

Source: NBSC

July PMI employment index recovered to 52.2
(Index) 40 '05.7 '06.7 '07.7 '08.7 '09.7 '10.7 PMI Employment
July trade surplus of US$287.3bn on reduced import
($bn) -10 '08.6 '08.12 '09.6 '09.12 '10.6 Trade balance(LHS) China export(RHS) China import(RHS) (% y-y) -20 -40 -60
Source: China Economic Information Net
Korean economic indicators
June industrial output rises 16.9% y-y, up for 12th straight month
(% y-y) -10 -20 -30 '08.6 '08.12 '09.6 '09.12 '10.6 16.9
June manufacturing output growth slowed due to ICT output contraction
(2005=100) -20 -40 -60 '06.1 '06.7 '07.1 '07.7 '08.1 '08.7 '09.1 '09.7 '10.1 '10.7 Manufacturing industry production index ICT production index

Source: NSO

Note: ICT = Information & Communication Technology of manufacturing Source: NSO
June retail sales up 3.8% y-y
(% y-y) -5 -10 '08.6 '08.12 '09.6 '09.12 '10.6 3.8
July CPI stabilized, climbing 2.6% y-y
(% y-y) '08.7 '09.1 '09.7 '10.1 '10.7 2.6
July SA jobless rate up 0.2% y-y to 3.7%
(%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 '08.7 '09.1 '09.7 '10.1 '10.7 3.7
July exports up 29.6% y-y; trade surplus for sixth straight month
(% y-y) -20 -40 -60 '08.7 '09.1 '09.7 '10.1 '10.7 Korea export(LHS) Korea import(LHS) Won/dollar rate(RHS) (Won/dollar, reversed) 1,000 1,100 1,200 1,300 1,400 1,500 1,600

Source: Ministry of Knowledge Economy, Bloomberg, Woori I&S Research Center

3. Earnings momentum

With negative 2011 EPS change continuing for emerging and developed markets, corporate earnings momentum appears to be weakening. Emerging Asias FY2 EPS change, however, rose from 0.16% to 0.37%, suggesting differentiated corporate earnings momentum for Asian companies. Meanwhile, Koreas earnings revision ratio declined 11.8%p w-w from 31.1% to 19.3% as the 2Q earnings season is coming to an end, and as earnings forecasts for IT SMEs were revised down slightly, following concerns over excess supply in the IT sector.
Global earnings momentum continues to decline
(%) -5 -10 -15 -20 -25 -30 '08.1 '08.5 '08.9 '09.1 '09.5 '09.9 '10.1 '10.5 MSCI World FY2 3M EPS %change MSCI Developed market FY2 3M EPS %change MSCI Emerging market FY2 3M EPS %change
US 3M FY2 EPS change: -1.2% and trending down
(%) -5 -10 -15 -20 -25 -30 '08.1 '08.5 '08.10 '09.3 '09.8 '10.1 '10.6 MSCI U.S market FY2 3M EPS %change (LHS) MSCI U.S Index (RHS) (p) 1,500 1,400 1,300 1,200 1,100 1,600

Source: Thomson Reuters

Europe 3M FY2 EPS change: -0.8% and continued downward trend
(%) -5 -10 -15 -20 -25 '08.1 '08.5 '08.10 '09.3 '09.8 '10.1 '10.6 MSCI Europe market FY2 3M EPS %Change (LHS) MSCI Europe index (RHS) (p) 200
Emerging Asias 3M EPS change: up to 0.37% from 0.16%
(%) -5 -10 -15 -20 -25 -30 '08.1 '08.5 '08.10 '09.3 '09.8 '10.1 '10.MSCI Asia market CAL FY2 3M EPS %change (LHS) MSCI Asia index (RHS) (p) 600
Korean corporate earnings
Earnings revision ratio down 11.8%p w-w to 19.3%
(%) -20 -40 -60 -80 '08.12 '09.3 '09.6 '09.9 '09.12 '10.3 '10.6 ERR (LHS) Earnings mementum (RHS) (%) -10 -20 -30
Kospis quarterly operating profit forecast (absolute amount) on a rise, with 2Q earnings season nearing an end
(Wtn) 0 1Q09 2Q09 3Q09 4Q09 1Q10E 2Q10F 3Q10F 4Q10F 9.9 16.7 operating profit trends 21.8 16.1 24.0 21.0 25.7 23.0
Note: Tally of companies listed on KOSPI with estimate data Source: FnGuide, Woori I&S Research Center
Semicon, capital goods, transportation, and insurance sectors see 2Q operating profit forecasts revised up w-w
(wtn) 0 -1 2Q10 OP Estimates
Semicon, auto, transportation, and banking sectors see 3Q operating profit forecasts revised up w-w
(wtn) 0 3Q10 OP Estimates
Source: Fnguide, Woori I&S Research Center
Kospi 2Q operating profit forecast turns to rise
(Wtn) '1.08 '1.29 '2.19 '3.12 '4.02 '4.23 '5.14 '6.04 '6.25 '7.16 '8.06 2Q10 OP Estimates
Kospi 3Q operating profit forecast continues to rise
(Wtn) '1.08 '1.29 '2.19 '3.12 '4.02 '4.23 '5.14 '6.04 '6.25 '7.16 '8.06 3Q10 OP Estimates

Weight 100 17.23 48.76 35.95 37.43 20.09 16.93 2.05 13.36 0.43 3.02 0.56 0.02 1.24 3.81 0.58 0.47 8.50 6.79 82.77 26.45 0.74 11.24 1.23 60.34
3,282,585 565,614 275,805 203,313 76,107 40,841 34,415 4,172 27,6,131 1,2,518 7,750 1,48,089 38,408 2,716,970 718,683 20,154 305,398 33,319 1,639,416

DM Total

Global
Emerging markets equity fund flow
Money flows into ex-Japan Asia Pacific funds for nine straight weeks
($mn) 3,000 2,000 1,-1,000 -2,000 -3,000 -4,000 -5,000 -6,000 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 10,000 5,-5,000 -10,000 -15,000 -20,000 -25,000
Money flows out of Latin America funds marginally last week
($mn) 1,500 1,0 -500 -1,000 -1,500 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 6,000 4,000 2,-2,000 -4,000 -6,000 -8,000
Capital flows into EMEA funds for three consecutive weeks
($mn) 1,0 -500 -1,000 -1,500 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 4,000 2,-2,000 -4,000 -6,000 -8,000
Money flows into GEM funds for 11th consecutive week
($mn) 5,000 4,000 3,000 2,000 1,-1,000 -2,000 -3,000 -4,000 -5,000 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 60,000 50,000 40,000 30,000 20,000 10,-10,000 -20,000
Money flows into Korea funds for three consecutive weeks (US$5.2mn)
($mn) -100 -200 -300 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 -1,500 -2,000 -2,500 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 0 -500 -1,000
Money flows into China funds for five consecutive weeks (albeit smaller amount)
($mn) 2,500 2,000 1,500 1,0 -500 -1,000 -1,500 '08.1 '08.5 '08.10 '09.2 '09.7 '09.12 '10.4 Weekly flows(LHS) Accumulated net inflow(RHS) ($mn) 14,000 12,000 10,000 8,000 6,000 4,000 2,-2,000 -4,000
Woori I&S strategy weekly overview
Date 2010-01-11 2010-01-18 2010-01-25 2010-02-08 2010-02-16 2010-02-22 2010-03-08 2010-03-15 2010-03-22 2010-03-26 2010-04-12 2010-04-19 2010-04-23 2010-05-10 2010-05-17 2010-05-25 2010-05-31 2010-06-14 2010-06-18 2010-06-25 2010-07-02 2010-07-09 2010-07-16 2010-07-23 2010-08-10 Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Strategy Weekly Analyst Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Clemens Kang Title Impact of won/dollar, won/yen on outperforming shares Volatility decreasing; Kospi nearing peak Step on brake from long-term perspective Value investors may enjoy market Overall economic trend to be key to investment decisions Additional rebound to be limited; maintain bearish stance Korean market: negatives fade Kospis lower end rising Timing is what counts for now Focus on market direction rather than possible market peak Excessive weighting in IT and auto; is portfolio rebalancing needed? Market rapidly absorbing selling pressure Invest in times of uncertainty Developed markets rallied during Asian foreign currency crisis Maximize returns with leaders Further sharp correction unlikely Domestic stock market likely to be exposed to liquidity balloon effect Three reasons 3Q looks better than 4Q No major selling pressure; focus on earnings momentum Important changes implies by 1H stock market Kospi uptrend likely on weakening selling pressure Earnings season: focus on stocks sensitive to macro indicators Foreign trading and dollar carry trading likely after rate hike Expanding group of leading sharesa positive sign Group of leading shares expanding

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