Asian company earnings cut on China, global slowdown worries

By Gaurav Dogra and Patturaja Murugaboopathy

(Reuters) - Equity analysts are cutting their estimates for Asian companies' earnings because of worries about slowing global growth and the absence of a boost from China's reopening from COVID.

According to Refinitiv IBES data, analysts have cut their forward 12-month earnings' estimates by 3.6% since February, more than the 1.9% increases released in January.

Some analysts expect China's recovery may not be enough to offset headwinds from weak global demand and supply constraints for export-reliant economies in the region.

"We think the primary drivers of Asian earnings downgrades are concerns about recession or a steep consumption slowdown in the developed markets, leading to Asian exporters' earnings estimates being revised down," said Manishi Raychaudhuri, Asia-Pacific head of equity research at BNP Paribas.

(Graphic: MSCI Asia-Pacific index's estimates change - https://fingfx.thomsonreuters.com/gfx/mkt/klvygnawevg/MSCI%20Asia-Pacific%20index's%20estimates%20change.jpg)

An Asia fund manager survey from Bank of America in March revealed a dampening of earnings expectations as the net share of respondents expecting Asia's profit cycle to brighten up in the next 12 months dropped to 53% from 76% in February.

The survey also showed only 83% of investors still anticipate a rise in Asia Pacific ex-Japan equities in the next 12 months, down from 90% in February.

Earnings at South Korean and Malaysian companies were downgraded 4.9% and 4%, respectively, while analysts cut earnings forecasts for Taiwanese companies by 3.3% in the past month.

Estimates for Chinese companies were cut by about 1% over the past month.

John Lau, head of Asian equities at investment firm SEI, said investors have turned cautious on Asian equities because of uncertainty over the direction of U.S. interest rates and the new appointments in Chinese leadership.

He said the earnings outlook in Asia could continue to be adversely affected by global demand uncertainty and soft economic data from the region, particularly from China.

Regional trade data showed China's economic reopening has not boosted Asian exporters much so far. Taiwan's exports fell in February to the lowest in nearly 24 months, while South Korea reported a fifth month of export declines.

March data showed South Korea's 20-day exports to China fell 36.2% year-on-year, while Taiwan's export orders to China slumped 48.3% in the first two months of this year, the biggest drop since early 2009.

(Graphic: Breakdown by country for estimates changes - https://fingfx.thomsonreuters.com/gfx/mkt/egvbyjqebpq/Breakdown%20by%20country%20for%20estimates%20changes.jpg)

By sector, earnings in tech and real-estate were downgraded by 3.72% and 3%, respectively, in the last month, while banking earnings were downgraded by 0.8%.

The 2022 earnings releases trickling in were disappointing and spurred the recent round of downgrades, analysts said.

"I think we are in a stage where we need to see further evidence of the strength of the recovery," said Herald van der Linde, HSBC's head of equity strategy for Asia Pacific.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; additional reporting by Davide Barbuscia in New York; Editing by Vidya Ranganathan and Christian Schmollinger)