Holiday-quarter profit at Asian companies is likely to drop for the first time in more than two years, following a small rise in the July-September period, as slowing exports, falling factory output and the Sino-US trade war take their toll.
Analysts expect profit to drop by an average 8 per cent for about 2,000 Asian companies over October-December from a year ago, weighed down by slowing growth for firms in the technology, telecommunications and auto sectors, Refinitiv data shows.
The last time things were so dire was the second quarter of 2016, when profit fell 9.4 per cent as oil prices recovered from multi-year lows hit earlier that year, pressuring profit margins, a Reuters analysis of more than 5,000 firms showed.
‘Fundamental risks that investors have anticipated since Q2 are starting to show in numbers,’ Mixo Das, a strategist at JP Morgan said, adding that signs of margin pressure were emerging.
Profit growth in the September quarter had slipped to 2.4 per cent after a 15.7 per cent rise in the first two quarters of the year, on an average.
The outlook for global growth in 2019 dimmed for the first time last month, according to Reuters polls of economists who said trade protectionism and tightening financial conditions would trigger the next downturn.
Markets worldwide are bracing for a chill.
MSCI’s broadest index of Asia-Pacific shares outside Japan has slumped 14.6 per cent so far this year, more than double the decline in the World index.
Analysts for Asian companies slashed their fourth-quarter and 2019 earnings expectations by 7.3 per cent and 3.7 per cent, respectively, in the last 90 days, Refinitiv data showed.
‘Growth slowdown is coming from a very high base as 2017 was a year of recovery,’ said Frank Benzimra, head of Asia equity strategy at Societe Generale, adding that companies are likely to cut their 2019 outlook after a disappointing fourth quarter.
The effects from higher tariffs and softer growth in China are more tangible in the fourth quarter, he said.
China and the United States have been locked in a debilitating trade war for months, in which the countries have imposed tit-for-tat tariffs on billions of dollars of imports.
The effect has been felt most keenly by tech companies and firms that supply them with components, as well as auto makers who do not produce cars locally.
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