Just as enthusiasm over artificial intelligence and China’s stimulus fades, a familiar weakness has come back to haunt equity investors in emerging markets: sinking corporate profits.
The latest earnings season marks eight quarters of misses for the average emerging-market company, based on a comparison of trailing 12-month earnings per share for the MSCI index and earnings estimates compiled by Bloomberg. Companies’ results are trailing investor expectations so much that profits have to jump 24% over the next year just to catch up with current forecasts.
Chinese mainland companies in the past quarter reported the weakest earnings since April 2018, soon after the trade war between the US and China began. Hong Kong-listed Chinese companies posted results that showed a marginal recovery after hitting the lowest level in at least a decade. Chinese consumers “are looking to conserve wealth,” said James Johnstone, co-head of emerging and frontier markets at Redwheel in London. “The very exciting post-pandemic revenge spending is over and people are tightening their belts.” ADVERTISEMENT CONTINUE READING BELOW Unlike China, where deflation helps companies control their costs, other EM countries are struggling after three years of elevated inflation.