The earnings outlook for Asian companies has experienced a significant uplift, driven largely by the semiconductor sector’s boom fueled by the rise of generative artificial intelligence. According to recent data from LSEG IBES, the average 12-month earnings per share (EPS) forecasts for companies within the MSCI Asia Pacific index have surged by 3.9% over the past month, marking the largest increase in earnings projections in over three years.
This upward revision comes after several months of modest adjustments and downward revisions earlier in the year. South Korean firms have seen the most substantial gains, with EPS projections climbing 8%, while Taiwanese and Japanese companies have experienced increases of 5%.
A standout example is Samsung Electronics, which has reported a dramatic 15-fold increase in second-quarter operating profit, attributing much of this success to burgeoning AI-driven demand for its chips. Similarly, Taiwan Semiconductor Manufacturing Company (TSMC), the globe’s leading contract chipmaker, has adjusted its full-year revenue forecast upwards, reflecting strong industry performance.
“Upgrades in Asian companies’ earnings expectations are largely driven by improvements in semiconductor earnings, particularly from South Korea and Taiwan,” stated Minyue Liu, an equity investment specialist at BNP Paribas Asset Management.
In China, earnings projections have been revised upward by 1.5% over the past month. Despite ongoing domestic demand weakness, there has been a mild improvement in manufacturing profit growth as of July. Elizabeth Soon, head of Asia ex-Japan equities at PineBridge Investments, noted that while some investors have been hesitant about China, certain companies are surpassing market expectations, and recent property market stabilization measures reflect government support.
In contrast, earnings forecasts for Indonesian, Australian, and Indian companies have been slightly downgraded over the same period. However, the overall performance of the MSCI Asia Pacific index remains robust, with a 9.7% increase so far this year. The index has seen notable gains in tech (7.5%), communication services (5%), and consumer discretionary sectors (5%). Utilities, driven by anticipated increases in electricity demand, saw their EPS forecasts rise by 20%, while the healthcare sector saw an 8% increase.
Looking ahead, analysts expect further boosts to Asian equities from potential U.S. Federal Reserve rate cuts, which historically have bolstered regional stock performance. Mark Haefele, chief investment officer for global wealth management at UBS, highlighted that MSCI Asia ex-Japan has traditionally seen a median price return of around 10% in the year following the first Fed rate cut, with regional stocks often outperforming their U.S. counterparts when the dollar weakens.
As the region navigates a dynamic economic landscape, the surge in semiconductor sector earnings and broader market improvements suggest a promising outlook for Asian equities in the months ahead.
hii Aditi Sahu this side..
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