Half-Time Score Card for Asia Earnings Looks Ugly

(Bloomberg) -- Fears of a dreadful earnings season for Asia equities are turning into a reality.

Of the members on the the MSCI Asia Pacific Index that have reported first-quarter earnings so far, 56% were worse than expected, according to data compiled by Bloomberg. The situation is worse if you compare them with results in the same period last year: 60% saw a profit decline.

Here are some highlights of the first quarter earnings:

• Consumer staples is the only sector with more than half of companies reporting earnings growth. Convenience stores and drug retailers led the increase, benefiting from rush buying of hygiene products and groceries. For example, first quarter profit of South Korea’s GS Retail rose four-folded, boosted by surging sales in refrigerated, frozen food and hygiene products
• Health care and communication services are relatively resilient, with about half of the companies posting profit growth
• 86% of consumer discretionary companies reported profit decline, the worst among all sectors, followed by energy

The overall poor results are no surprise. Drastic virus containment measures have shut factories, disrupted supply chains and closed shopping malls. While many countries now are mulling how to ease lockdowns, whether businesses can return to normal in a short period of time remains a question due to worries over a potential second wave of infections.

Throw in the recent oil market swoon and U.S.-China trade tensions and the outlook for Asian earnings remains cloudy. The estimated earnings per share for stocks in the region’s benchmark has fallen 13% since its peak in January, Bloomberg data shows.

Further significant earnings downgrades are likely, but the pace may start to slow, Goldman Sachs Group Inc. strategists led by Timothy Moe wrote in a note. South Korean refineries may face more disappointments on low refining margins and weak oil demand, they said. Earnings for Australia and ASEAN markets are yet to get out of woods due to poor consumer sentiment and tourism businesses, according to the team.

For anyone seeking a brighter spot in earnings, the tech sector looks “relatively better,” helped by analysts’ positive views on China’s online spending and Tencent’s mobile game ranking score, Goldman Sachs wrote. In terms of markets, Taiwan may see a “resilient” earnings revision given double-digit year-on-year semiconductor sales and positive export orders, according to the note.

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