Emerging earnings: a lot of misses
It’s not shaping up to be a good year for emerging equities. They are almost 3 percent in the red while their developed world counterparts have gained more than 7 percent and Wall Street is at record highs. When we explored this topic last month, what stood out was the deepening profit squeeze and steep falls in return-on-equity (ROE). The latest earnings season provides fresh proof of this trend and is handily summarized in a Morgan Stanley note which crunches the earnings numbers for the last 2012 quarter.
The analysts found that:
–With 84 percent of emerging market companies having already reported last quarter earnings, consensus estimates have been missed by around 6 percent. A third of companies that have already reported results have beaten estimates while almost half have missed.
— Singapore, Turkey and Hong Kong top the list of countries where earnings beat expectations while earnings in Hungary, Korea and Egypt have mostly underwhelmed. Consumer durables companies recorded the biggest number and magnitude of misses at 82 percent.
— Asian firms missed earnings forecasts by 4 percent, Latin America by 6 percent and EMEA-based firms by 3 percent, Morgan Stanley estimate. (Note: MS include Australia in the Asian list but not Japan)
— Outside of EM, the picture is mixed: while U.S. S&P 500 companies have reported an aggregate earnings beat of 5 percent, companies from MSCI Europe have missed consensus by 4.2 percent.
All in all, the picture is not reassuring. But investors are still banking on the abundant global liquidity to come to the rescue. Late last month, Reuters surveyed more than 450 analysts and the consensus among them was for double-digit gains on emerging equities by end-2013 — see below for the graphic. Now markets just have to buck up or they risk missing that consensus as well.