Earnings Season Another Reason for Asia Traders to Sell

(Bloomberg) -- Those hoping the upcoming earnings season will give some respite to tumultuous Asian stock markets might be in for disappointment.

Analysts and strategists have been trimming their expectations for companies in the MSCI Asia Pacific Index, in direct contrast to firms from Europe and the U.S., where estimates are still rising. And the early results from South Korea and Japan are pointing to a bleak picture.

Samsung Electronics Co. reported Friday earnings that fell short of estimates on weaker demand for smartphones.

Out of 66 members of Japan's Topix index that have reported earnings this season, 81 percent have missed projections, data compiled by Bloomberg show. This follows weak results at the start of the year, when the average sales surprise for MSCI Asia Pacific Index companies fell to the lowest since 2016 and about half that of the previous quarter.

In less than a month, analysts have lowered their 12-month profit projections for members of the Asian index by 17 cents to $13.18 a share. They have plenty of reasons to chose from:

• Global trade tensions -- while Chinese equities are poised to suffer the most, those in Japan and Southeast Asia, where companies are part of regional supply chains, won't be spared either
• Faster-than-expected rate hikes in Indonesia, the Philippines and Malaysia are likely to weigh on companies' borrowing costs
• Rising crude prices might hurt Indian importers of oil, just as a stronger U.S. dollar is making commodities in general more costly
• Then there's concerns over economic growth -- purchasing manager index readings from China and Japan, as well as South Korea's export data, sent shares into a funk on Monday
• And weak currencies: the Indian rupee, Philippine peso and Indonesia's rupiah are some of the world's biggest emerging-market losers this year, which raises the cost of servicing dollar-denominated debt even as it provides a fillip to exporters

Then there are sector and country-specific factors to worry about. Technology-hardware companies such as semiconductors and mobile-phone makers are poised to see cuts amid heightened trade tension, Morgan Stanley's Jonathan Garner said in a Bloomberg TV interview last week. The firm also slashed its 12-month target for the Hang Seng Index, saying Hong Kong companies depend on China for their earnings.

In India, the central bank's efforts to tighten the availability of rupees in the market and halt a slide in the currency may squeeze profitability at the nation's lenders as it raises their funding costs, according to the local unit of Moody's Investors Service.

Pockets of Opportunity

Of course, it isn't all bad for the upcoming season. Morgan Stanley expects strong first-quarter profit for retail banks in India, according to a report on July 2. Goldman Sachs Group Inc. sees Hong Kong lenders beating estimates and propelling their stocks higher.

Singapore and New Zealand may be beacons of hope as their earnings estimates over the next 12 months are still on the rise, data compiled by Bloomberg show. Andrew Chow, an analyst at UOB Kay Hian, wrote in a June report that earnings will grow more than 10 percent at Singaporean companies this year, driven mainly by banks.

“It's such an opaque situation at the moment,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. “That's why you're seeing this pressure in the markets and liquidity is just being sucked out from what's happening.”

--With assistance from Matthew Burgess.

To contact the reporter on this story: Divya Balji in Singapore at dbalji1@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Cecile Vannucci, Cormac Mullen

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