Equity analysts have been lowering their earnings predictions for Asian companies due to apprehensions about the worldwide economic deceleration and the lack of a significant rebound from China's reopening following COVID, according to Reuters..
Refinitiv IBES data reveals that since February, forward 12-month earnings estimates have been reduced by 3.6%, contrasting with the 1.9% increase in January.
Some experts believe that China's resurgence may not be sufficient to counterbalance the challenges presented by feeble global demand and supply restrictions for export-dependent economies in the region.
Manishi Raychaudhuri, BNP Paribas' Asia-Pacific Head of Equity Research, explained that "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."
In March, a Bank of America Asia fund manager survey unveiled weakened earnings expectations, with the net share of participants foreseeing an improvement in Asia's profit cycle over the next year plummeting to 53% from 76% in February.
The survey also indicated that only 83% of investors continue to expect growth in Asia Pacific ex-Japan equities within the next year, a drop from February's 90%.
Earnings forecasts for South Korean and Malaysian companies were reduced by 4.9% and 4% respectively, while Taiwanese companies' predictions were cut by 3.3% over the past month. Chinese companies' estimates were trimmed by around 1% in the same period.
John Lau, SEI's Head of Asian Equities, stated that investors have become more cautious about Asian equities due to uncertainties surrounding US interest rate fluctuations and changes in Chinese leadership. He also noted that global demand ambiguity and weak regional economic data, particularly from China, could further impact the Asian earnings outlook.
Regional trade data demonstrates that China's economic recovery has not significantly benefited Asian exporters thus far. Taiwanese exports experienced their lowest levels in almost 24 months in February, and South Korea reported its fifth consecutive month of export declines.
In March, South Korea's 20-day exports to China decreased by 36.2% year-on-year, while Taiwan's export orders to China plunged by 48.3% in the first two months of the year, marking the largest decline since early 2009.
In the last month, earnings in the tech and real estate sectors were downgraded by 3.72% and 3% respectively, while banking earnings saw a 0.8% downgrade.
Herald van der Linde, HSBC's Head of Equity Strategy for Asia Pacific, commented that "we are in a stage where we need to see further evidence of the strength of the recovery" in response to the disappointing 2022 earnings releases that triggered the recent round of downgrades.