Asia Analysts Predict Biggest Profit Drop Since Pandemic Started

Asian stocks just can’t catch a break. Fresh from being whipsawed by rising geopolitical tensions over Taiwan, they now face what’s forecast to be the worst earnings season since the start of the pandemic.

Earnings per share for MSCI Asia Pacific Index members slid 16% in the three months through June from a year earlier, the steepest decline in eight quarters, according to analyst estimates compiled by Bloomberg Intelligence. That contrasts with a 9% gain seen for companies in the S&P 500 Index even as the US economy edges toward a recession.

The prospect of dwindling profits adds to the negatives that have dragged the MSCI Asia Pacific Index down almost 16% this year, putting it on course for its worst annual performance since 2018. These include China’s lockdowns — a key reason for the region’s poor earnings show, a slowdown in the semiconductor cycle, and the political furore over US House Speaker Nancy Pelosi’s trip to Taipei.

While the Asian stock benchmark just capped a fourth week of gains as US inflation slowed, the durability of the recovery is already being questioned.

“All the elements are not in place for a sustainable up-move,” said Rajat Agarwal, an Asia equity strategist at Societe Generale SA. Earnings have yet to enter a new cycle, geopolitical tensions will continue to be priced in, and financial conditions remain restrictive, he said.

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