Analysts Cut Asia’s Corporate Earnings Estimates on Growth Concerns

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Asian companies’ earnings have been downgraded for the first time in 16 months, data shows, on concerns over slowing growth in China and on worries that higher inflation and supply chain disruptions would weigh on profits.

According to Refinitiv IBES estimates data, MSCI Asia-Pacific companies’ earnings estimates for the next 12 months have been cut by 1.3 percent in the past month, the first downgrade since June 2020.

“We turn cautious on the earnings outlook of Asian companies,” said Alvin So, equity strategist at Goldman Sachs, in a note this week.

“We forecast MXAPJ earnings to grow 32 percent this year and 9 percent in 2022–23, cumulatively 5 percent below bottom-up consensus on 2023 EPS, with risks stemming from virus impact, China growth and policy, supply disruption, and cost inflation.”

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 emerged from lockdowns and delivered better earnings in the second half of last year.

Consumer discretionary sector saw a downgrade of about 2.5 percent, while health care, consumer staples, tech, and materials sectors, saw their estimates revised down by over 1 percent 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.

“Based on the current pace of vaccine roll-out, herd immunity (in ASEAN region) is at least six months away,” ANZ bank said in a report.

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.