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Downgrades, misses on company earnings pose risk to Asian equities


By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) - After a hugely disappointing outcome for Asian companies' earnings in 2017, analysts are bracing for lower profits this year and expect stock markets will weaken in the coming months to reflect the dimming outlook.

Asian stock markets were among the world's best performing last year as a combination of synchronised global growth, low inflation and rising commodity prices spurred the first major upgrade in earnings estimates.

Yet, earnings for the year were below analysts' expectations and they are now revising down their forecasts for 2018, suggesting more pain for stock markets which are already facing pressure from rising global interest rates and trade tensions.

MSCI's index of shares outside has tacked on just 0.18 percent this year, after advancing 33.5 percent in 2017.

data showed 62 percent of ex-companies missed estimated earnings last year, the highest in at least seven years.

Analysts said lower demand for at the end of the year and a rise in input costs in the consumer and depressed profits.

Over the past three months, analysts have been cutting their 2018 earnings estimates for technology and industrial sectors - the two which saw the biggest earnings misses last year.

Asian companies' net income grew 30 percent in 2017, their highest in six years. Yet, that was still 200 basis points lower than consensus forecasts.

Herald van der Linde, of equity strategy at said he now sees 12 percent upside for Asian equities in 2018, down from 15 percent at the start of the year.

"Asia's earnings upgrade cycle has come to a halt," said in a report, adding there was downside risk from higher interest rates and trade disruption.

data also showed the quarterly rise in Asia's forward earnings forecasts at the end of March was the lowest in over a year.

These tepid growth projections come a time when trade tensions between the and are escalating and causing nervousness in the region's stock markets.

Despite these risk factors, Asian equities' forward price-to-earnings ratio is at 13.7, higher than its 10-year PE average of 13.2. India, Indonesia, and Philippine are the most expensive markets in the region.

"We are expecting a PE de-rating already in parts of emerging markets on increasing trade concerns, rising U.S. rates and increasing volatility, and a possible dollar strengthening from current levels," said Sean Taylor, chief investment officer for the Pacific at

Josh Crabb, of Asian equities at Global Investors, has been underweight the Philippines, Taiwan, and because they are relatively expensive and has more weighting in and where he sees markets relatively cheaper and things getting better.

(Reporting By Patturaja Murugaboopathy; Editing by & Shri Navaratnam)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, April 12 2018. 13:14 IST