Asia Inc earnings: China slowdown and Southeast Asia boom

SINGAPORE/HONG KONG: Australian companies' fortunes faded even
faster than those in recession-hit Spain over the last month, dragged
down by a slowing Chinese economy that is also hurting companies in
Taiwan and Hong Kong, Thomson Reuters StarMine data shows.
Projections
for forward 12-month earnings for Australia have come off 5 percent
over the past month, twice as much as the 2.4 percent cut to Spanish
company forecasts. Across the Asia-Pacific, estimates have slipped 1.4
percent, and globally they have been cut by 1.2 percent.
Southeast
Asia, however, is showing resilience and is expected to benefit further
from a commodity boom, greater foreign investment and government-driven
investment in infrastructure projects.
As the second-quarter
earnings season kicks off, companies around the world are rushing to
lower expectations. Some have singled out China as a source of
weakness. Growth in the world's second-largest economy probably slowed
to a three-year low of 7.6 percent in the second quarter, economists
polled by Reuters have said.
"North Asian companies are seeing
the biggest downgrades. Generally investors and analysts are more
forgiving on ASEAN than North Asia," said Markus Rosgen, head of Asia-Pacific equity strategy at Citigroup.
He said the biggest earnings risks appeared to be in the technology and materials sectors.
SOMBRE DOWN UNDER
In Australia, the cuts flood in even after an already ugly month.
For mining major Rio Tinto
, eight analysts have reduced their forecasts for 2012 earnings by an
average 5.3 percent over the last two weeks, data from StarMine shows.
And it doesn't stop there.
Credit
Suisse analyst Paul McTaggart slashed his estimates for the company's
2013 earnings by a fifth on Thursday, saying the company's reliance on
iron ore and copper leaves it highly exposed to any sustained downturn
in Chinese construction.
Taiwan is also feeling the pain.
Exports from Taiwan, one of Asia's most export-oriented economies, with
an exports-to-gross domestic product ratio of 74 percent, shrank for
the fourth straight month in June.
Analysts have cut 2012
earnings estimates for Acer by 6.9 percent on average over the past 30
days. From the seven analysts who have revised Acer's forecasts
recently, the estimates have come off on average by a fourth.
With investor eyes glued to China, more bad news is expected.
At
least half a dozen Chinese companies -- ranging from a steelmaker to
the country's biggest airline -- have warned investors in the space of
weeks that earnings would be softer than expected on slowing growth.
WORK AND PLAY AND PROFIT
Southeast Asia is faring better, with companies in Singapore, the Philippines and Malaysia holding firm.
In
Singapore, companies are benefiting from the booming tourism industry
and strong retail consumption as the city-state slowly transforms
itself from a regional trade and financial centre into a place for both
work and play.
Analysts have raised earnings estimates for hotel
owner CDL Hospitality Trusts, shopping mall developer CapitaMalls Asia
and property developer City Developments.
Southeast Asian
markets have been the flavour of the year, with Vietnam, the
Philippines and Thailand figuring among the world's best performing
stock markets in the first half.
In the first quarter, the Philippine economy grew 6.4 percent year-on-year, second only to China among Asian economies, and President Benigno Aquino told Reuters last week he expected the pace to accelerate in the second quarter.
"Major
countries in the region appear to be in an investment phase, which we
think is good timing. In the midst of a global slowdown, the ASEAN
region can carry on with both fiscal and monetary support to help
sustain growth," said Pauline Ng, investment manager at JPMorgan Asset
Management in Singapore.
"Support from public spending and plans
to increase production should have multiple benefits," said Ng, who
helps manage about $3.5 billion invested in ASEAN equities.
Subdued interest rates in many countries give additional spending firepower to the fast-growing middle class.
But the heavy interest in Southeast Asian markets is stretching valuations which are now at significant premiums to the region.
The
Philippines, for example, is currently trading at about 14.5 times
forward earnings compared with a 9.5 multiple for the Asia-Pacific,
StarMine data shows. Indonesia trades at 13 times.
Australia, meanwhile, trades at 10.5 times forward earnings and Hong Kong is roughly in line with the region. - Reuters