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Keep an Eye on This Theme: Cost-Cutting by Firms in Asia

Cost-Cutting Asia Firms a Theme To Keep An Eye On For Stocks Investors

(Bloomberg) -- There’s something unusual going on among many Asian companies, and it might just boost trading profits for the patient and well-timed investor.

While spending generally rises alongside economic growth, there’s been a trend of cost growth actually decelerating faster than slowing revenue over at least the past year among Asian firms, according to UBS Group AG strategists including Niall MacLeod.

“This makes the current environment very odd compared to history,” the strategists said in a Sept. 25 note to clients. “While the demand impact of the trade dispute is likely playing a role, the uncertainty about trade and the world economy is also likely having an impact.”

It is, however, not likely to be a factor investors can expect to boost profitability any time soon -- in the short-term, UBS continues to expect much weaker economic growth into the first quarter of 2020 due to proposed tariffs, while earnings per share forecasts suggest consensus estimates are also too high.

But this sudden financial discipline among Asian firms could set them up nicely in a cyclical rebound to “provide more upside to margins than has historically been the case.”

Of course, for such a rebound to occur there needs to be a downturn first, and that still remains ahead of us, the strategists say. Better then to keep this idea in your back pocket for now.

“Catching that turn could prove more profitable for Asian companies than is normally the case,” they said.

Meantime in Thursday trading, the MSCI Asia Pacific Index inched 0.3% higher, extending a September advance that halted a two-month slide.

Stock Market Summary

  • MSCI Asia Pacific Index ex-Japan up 0.2%
  • MSCI Asia Pacific Index up 0.3%
  • Japan’s Topix index up 0.5%; Nikkei 225 up 0.3%
  • Hong Kong’s Hang Seng Index up 0.4%; Hang Seng China Enterprises up 0.5%; Shanghai Composite up 0.2%; CSI 300 up 0.2%
  • Taiwan’s Taiex index up 0.3%
  • South Korea’s Kospi index up 0.5%; Kospi 200 up 0.5%
  • Australia’s S&P/ASX 200 down 0.3%; New Zealand’s S&P/NZX 50 little changed
  • Singapore’s Straits Times Index little changed; Malaysia’s KLCI little changed; Philippine Stock Exchange Index down 0.1%; Jakarta Composite up 0.7%; Vietnam’s VN Index up 0.2%
  • S&P 500 e-mini futures little changed after index closed up 0.6% in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Lianting Tu

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