Analysts cut 12-month earnings forecasts for Asian corporates on lower manufacturing

[September 13, 2022]  (Reuters) - Analysts have cut their 12-month earnings forecasts for Asian companies over the past month, undermined by a dip in manufacturing activity and concerns over a drop in shipments, especially to China.

According to Refinitiv data, Asia's large and mid-cap companies' forward 12-month earnings estimates have been cut by 2.8% over the past month. In the past three months, the estimates have been cut by 5%, the data showed.

South Korean and Taiwanese companies led the earnings downgrades in the region over the past month, as they faced cuts of 5.5% and 3.5%, respectively.

Japan and China also followed, with cuts of about 3.4% each.

Japan's factory activity grew at its slowest rate in nearly a year in August, while that of South Korea contracted at its sharpest rate in two years, PMIs for both countries showed.

Manufacturing activity also deteriorated in Taiwan, with production and new orders both falling at the fastest pace since the initial wave of the pandemic in May 2020.

"Taiwan may see further negative earnings revisions following a continued contraction in manufacturing PMI and ongoing semiconductor sales declines on a sequential basis," Goldman Sachs analysts wrote.

Factory chimneys are seen at Keihin industrial zone in Kawasaki, south of Tokyo, Japan, August 18, 2016. REUTERS/Kim Kyung-Hoon

"Following sustained weakness in tech exports and an unchanged US ISM, the Korean market may see the largest earnings downgrades given its sensitivity to global growth and the manufacturing cycle."

China's factory activity also extended declines in August, hit by new COVID infections, heatwaves, and an embattled property sector.

Analysts expect the slowing Chinese economy would further weaken the region's earnings in the coming months.

"Starting from March, exports to China within the region slowed sharply, before falling into year-over-year contraction in May," BofA Global Research said in a note.

"Asia will likely suffer more from persisting demand weakness in China in the coming quarters, especially given its substantial direct exposure to the Chinese economy."

On the other hand, Vietnam's and Indonesia's earnings forecasts were raised by 0.7% and 0.5%, respectively.

(Reporting by Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru, Editing by Louise Heavens)

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