Analysts cut 2024 earnings outlooks for Asian firms amid China slowdown,
Q3 profit gloom
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[November 09, 2023] By
Gaurav Dogra and Patturaja Murugaboopathy
(Reuters) - Prospects for robust earnings growth for Asian companies in
2024 look bleak as analysts are relentlessly cutting regional companies'
forward 12-month earnings estimates due to China's faltering economy,
disappointing third-quarter earnings, and a rise in interest rates.
According to LSEG's IBES data, analysts cut Asian companies' forward
12-month profit estimates by 0.3% in October, the third successive month
of downgrades.
"A sluggish growth recovery in China is one of the main reasons for
downward earnings revisions," said Rajat Agarwal, an Asia equity
strategist at Societe Generale.
"Given China is almost 40% of the Asian earnings pie, this has
implications for the overall Asia earnings cycle, investor sentiment and
foreign inflows."
While China's economic restart after lifting COVID-19 restrictions
initially sparked a rally in Asian stocks, enthusiasm waned as the year
progressed, hampered by the country's decelerating economy, a deep slump
in the real estate sector, and geopolitical strains.
Prerna Garg, an equity strategist at HSBC, said earnings growth is set
to slow in 2024 in most of Asia. She added that China's profit estimates
for 2023 by street analysts have been cut to 18% now from 24% in August.
"This has largely been on the back of the property sector and utilities,
where results came softer than expected," she said.
Uninspiring earnings for the third quarter from Asian companies have
also led to reductions in their earnings projections for the upcoming
year.
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Customers dine at a restaurant in Beijing, China, October 17, 2023.
REUTERS/Tingshu Wang
LSEG data reveals that 53% of Asian companies reporting thus far
have fallen short of consensus estimates, with 58% having reported.
"Overall, the earnings season has disappointed Street expectations,
with more misses than beats. These results have led to overall
earnings downgrades," said Chetan Seth, an equity strategist at
Nomura, in a note this month.
In October, earnings estimates for Chinese and Indonesian firms were
trimmed by around 2%, while those for Hong Kong and Malaysia
companies were lowered by approximately 1.5%.
Conversely, Indian and South Korean firms saw their projections
bumped up by about 0.7%.
"Taiwan and Korea are seeing earnings upgrades given the recovery in
the global semiconductor cycle, which matters the most for these two
markets," said Societe Generale's Agarwal.
Minyue Liu, an investment specialist at BNP Paribas Asset
Management, cautioned that normalization in external demand, China's
uneven recovery, inflationary headwinds, and geopolitical
uncertainties could lead to short-term market fluctuations.
"(Yet), domestic demand and investment are likely to be the new
drivers of economic growth in emerging Asian markets," she said.
"Modest valuations, light investor positioning, good fundamentals
and structural long-term growth opportunities should help Asian
stocks withstand near-term volatility."
(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru;
Editing by Kim Coghill)
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