By Gaurav Dogra and Patturaja Murugaboopathy
Analysts are raising earnings estimates for Asian companies for the first time in four months as easing price pressures boost consumption while receding fears of a recession in developed markets is expected to help to lift export revenues.
Equity analysts have upgraded Asian companies' forward 12-month net profits by 2.3% over the past month, based on Refintiv data. That compares with a meagre 0.7% increase in global companies' profit estimates in the past month.
"The Asian profit picture is improving slowly but surely," said Manishi Raychaudhuri, Asia-Pacific head of equity research at BNP Paribas. Some of the key drivers are domestic consumption, a likely capital spending cycle, and hopes of a policy stimulus in China, Raychaudhuri said.
Also helping to lift estimates were strong earnings performance by Asian companies in the second quarter so far. Half of the region's companies have reported their March-June quarter earnings, with 56% of them beating consensus estimates.
In most markets, margin expansion has been playing a major role in driving overall earnings growth, HSBC analysts said.
Across sectors, consumer discretionary led with 2.8% of earnings upgrades over the past month, while utilities and financials sectors also got an upward revision of 2.5% and 1.4%, respectively.
China's tortuous post-pandemic recovery has cast a shadow across the world, with firms ranging from automakers to machinery makers warning of slowing earnings in the world's second-biggest economy.
Refinitiv data, though, showed that analysts have turned positive on China's forward 12-month earnings, lifting the consensus earnings estimates by 0.5% over the past month after three straight months of cuts.
The majority of the upgrades followed a Politburo meeting, where China's top leaders pledged policy support, focusing on boosting domestic demand and signalling on more stimulus steps.
Rajat Agarwal, Asia equity strategist at Societe Generale, said China's earnings estimates have been resilient in 2023 with growth of 20% expected, despite the economic slowdown.
"A potential policy support can boost both the market sentiment and earnings."
Substantive actions will need to follow policymakers' words to help shore up shaken confidence in China, investors and analysts said.
Sunil Tirumalai, an emerging markets and India strategist at UBS, said the announcements after the Politburo meetings appear growth oriented, and have positive incremental messaging on key areas like property.
"We see China market performance picking in the coming months – especially given the low expectations and valuations."
While the MSCI Asia-Pacific index climbed 4.6% last month, taking the year-to-date gains to about 10%, the index's forward price-to-earnings ratio languished at 14.08, still below last 3-year average of 14.3.
Timothy Moe, chief Asia Pacific strategist at Goldman Sachs, said earnings would be the main source of returns for Asian markets from here on.
"Markets are past the hope phase in the cycle, where valuations expand in anticipation of fundamental improvement and are now in the growth phase, where earnings delivery is the key performance driver."
(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru and Ankur Banerjee in Singapore. Editing by Jane Merriman)
