Asian equity earnings have room to grow


Global economies are likely to continue on their recovery path in the coming quarters underpinning demand for commodities.

This could possibly allow commodity prices to continue to find the middle ground between supply and demand.

With economies around the world experiencing synchronised growth, global trade activities are improving on the back of stronger global aggregate demand.

The low unemployment rate has continued to underscore US domestic consumption. Europe has moved on from its sovereign debt crisis, showing encouraging signs of broad-based recovery among member states.

This has lifted expectations and sentiments among businesses and consumers which translate into more resilient consumer and economic activities.

China’s economic transitioning to consumption-led growth continues to take place, depicted by its robust double-digit retail sales figures.

In emerging economies, gross domestic product growth over the recent quarters were supported by decent private consumption growth as well.

Inflation appears to have peaked following the stabilisation of commodity prices, particularly oil.

We see inflation as less of a threat to consumption spending at this juncture. Given this environment, demand for goods and services may continue to ameliorate, underscoring trade activities and demand for Asian manufactured goods going forward.

We believe China’s economic transition has been successful thus far and economic growth is currently hovering at more than 6%, which is still within the expectations of the Chinese policymakers.

Chinese policymakers are still placing efforts in paving a steady growth path for the economy and reform efforts have translated to a stable economic growth trend.

Hence, we are looking at an improving macroeconomic environment for Asian countries and improved consumption in developed economies. These ingredients may culture decent earnings prospects for Asian corporates and have prompted analysts to revise their earnings estimates upwards since the second half of last year.

Moving forward, we opine corporate earnings may remain supported by positive macro-economic backdrop, which could potentially drive Asian equities’ performance further.

The risks stemming from US President Donald Trump’s administration on top of the heavy political calendar in Europe. Escalating geopolitical tensions between the US and North Korea has increased volatility in Asian equity markets.

We do not foresee a sudden shift in monetary stance in the US towards a hawkish rate path as the current “lower-for-longer” stance from the US Federal Reserve is preserving its economic growth momentum.

While geopolitical risks may linger around for an indefinite time, we have yet to see any material threats that may weigh upon the progress of global economic recovery.

Equity markets may turn a deaf ear to market noise and continue to trend higher should corporate earnings continue to grow.

We are convinced there is still headroom for Asian equities to trend higher. While valuations may have inched higher in the past year, Asian equities are still priced at an attractive level, presenting an entry opportunity for value investors who are seeking to tap into the growth opportunities within the region.