China’s slowing growth has led to a downgrade in Asian companies’ predicted earnings for the first time in 16 months.
According to Refinitiv IBES estimates data, MSCI Asia-Pacific firms’ earnings estimates for the next 12 months have been cut by 1.3% in the past month, with fears inflation and supply chain disruptions will also weigh on profits.
Alvin So, equity strategist at Goldman Sachs, said in a in a note this week they were now “cautious on the earnings outlook of Asian companies.”
“We forecast MXAPJ earnings to grow 32% this year and 9% in 2022-23, cumulatively 5% below bottom-up consensus on 2023 EPS, with risks stemming from virus impact, China growth and policy, supply disruption, and cost inflation,” he added.
Asian firms have enjoyed consecutive earnings upgrades as analysts forecast regional firms to outbeat the lower profits posted in the early part of 2020, when the economies were hit due to lockdowns.
However, the firms face higher base figures now as most countries have emerged from lockdowns and delivered better earnings in the second half of last year.
The consumer discretionary sector saw a downgrade of about 2.5%, while health care, consumer staples, tech and materials sectors, saw their estimates revised down by over 1% each.
The International Monetary Fund on Tuesday slashed this year’s economic growth forecast for Asia and warned that a fresh wave of Covid-19 infections, supply chain disruptions and inflation pressures pose downside risks to the outlook.
Analysts also said the major central banks’ monetary tightening measures would increase the regional firms’ borrowing costs and squeeze their profits.
China’s economy hit its slowest pace of growth in a year in the third quarter hurt by power shortages and wobbles in the property sector.
- Reuters with additional editing by Sean O’Meara
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