Asian stocks just can't catch a break, according to Bloomberg. They are now facing what is predicted to be the worst earnings season since the start of the epidemic, after being whipsawed by rising geopolitical tensions over Taiwan.
Earnings per share for MSCI Asia Pacific Index members fell by 16% in the three months through June from a year ago, the steepest decline in eight quarters, according to analyst estimates compiled by Bloomberg Intelligence. Even as the US economy edges toward a recession, the S&P 500 Index has a gain of 9%, as it compares to a 9% gain seen for companies in the S&P 500 Index.
The MSCI Asia Pacific Index has gone down over 16% this year, putting it on course for its worst annual performance since 2018, despite the fact that there are negatives that have added to the negatives that have dragged the MSCI Asia Pacific Index down almost 16% this year. These include China's lockdowns, which is a key reason for the region s poor earnings show, a slowdown in the semiconductor cycle and the political furore over US House Speaker Nancy Pelosi's trip to Taipei.
The durability of the recovery is already being questioned, as the Asian stock benchmark capped a fourth week of gains as US inflation slowed.
Rajat Agarwal, Asia equity strategist at Societete Generale SA, said all the elements are not in place for a sustainable up-move. Earnings have yet to enter a new cycle, geopolitical tensions will continue to be priced in and financial conditions remain restrictive, he said.
A slowdown in China is one factor that is pushing down regional earnings, particularly as mainland firms make up about 20% of the MSCI Asia gauge. Profits for the MSCI China Index constituents are expected to fall 12% in the June quarter from a year ago, dragged down by virus curbs, a cratering in the property market and dislocated supply chains.
The weakness in the export-oriented sectors such as semiconductors is also hurting. Analysts have cut back estimates at Korea's chip-making giants Samsung Electronics Co. by 16% and SK Hynix Inc. by 34% from their recent peak, citing falling global demand for electronics such as mobile phones and PCs.
What is happening in the US and Europe, companies pulling back on investments, that is the burden on tech hardware earnings right now, said Tai Hui, chief Asia market strategist at JPMorgan Asset Management in Hong Kong.
There are some positive signs for Asian stocks. Fund flows into a number of markets this quarter are encouraged by a halt in the dollar rally. Global investors have boosted their holdings of shares in the region's emerging markets outside of China for four straight weeks, the longest streak since January, according to data compiled by Bloomberg.
JPMorgan Asset s Hui says he favors reopening plays in Southeast Asia in the tourism and retail sectors, while Eastspring Investments is joining other asset managers in recommending Chinese electric-vehicle stocks. The shares in India and Indonesia should continue to outperform, according to M&G Investments.
Others such as T. Rowe Price are more cautious, saying they are waiting for more signs of improvement in the world's largest economies before turning optimistic about earnings in Asia.
Haider Ali, associate portfolio manager for the firm's emerging markets discovery equity strategy in Hong Kong, said that these are still early days and we need to watch trends in US core inflation and employment in the coming months to gain more confidence in the sustainability of these trends.
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