Asia's earnings growth slowed considerably in the latest quarter, putting the region's already lackluster stock markets further behind global peers. Image Credit: Reuters

Hong Kong: Asia's earnings growth slowed considerably in the latest quarter, putting the region's already lackluster stock markets further behind global peers.

Third-quarter earnings per share grew by 36 per cent for MSCI Asia Pacific Index members, a muted performance compared with the triple-digit gains in the first half thanks to the rebound from the pandemic, according to the latest earnings data compiled by Bloomberg. Corporate profits for benchmarks in the US and Europe grew 42 per cent and 91 per cent respectively, in the three months through September.

While global stocks have looked past peak earnings, rising material costs and supply snags to climb to record highs this year, the picture is different in Asia, where shares are little changed. The region's relative slowness in removing mobility restrictions, China's Covid-zero policy and its crackdown on private enterprise have all weighed on businesses, and the outlook remains uncertain.

"The Asian region has controlled the spread of the COVID-19 pandemic more effectively than other parts of the world, but it is coming at the cost of higher restrictions and a more modest recovery in economic activity," said Jessica Tea, senior investment specialist at BNP Paribas Asset Management.

China drag

China has been a drag on the region's earnings due to power shortages, the lockdown of cities and its ever-expanding property crisis. Tencent Holdings Ltd. announced its slowest sales growth since 2004 after regulations hammered its advertising business.

Misses outnumbered beats by almost two-to-one in China's earnings season through Nov. 10, with real estate and consumer discretionary sectors struggling the most, according to Bloomberg Intelligence strategist Marvin Chen. Morgan Stanley and Goldman Sachs Group Inc. expect further earnings downgrades on weak macro data.

With more than 1,000 of Asia's biggest companies having reported results, some notable misses were the world's largest rubber glove maker Top Glove Corp., Apple Inc. supplier Pegatron Corp. in Taiwan and South Korean Internet firm Kakao Corp. In Japan, firms making everything from paint to pianos to office equipment saw shares tumble thanks to semiconductor shortages.

Bright spots

On the flip side, upward earnings revisions are expected in India and Southeast Asia, which have made bigger strides toward reopening their economies this quarter. The MSCI Asean Index is up almost 5 per cent since the end of September, outperforming the broader regional gauge by over three percentage points.

"After unrelenting underperformance vs. the region since 2013," the Southeast Asian region may deliver better returns in 2022 as it recovers from Covid setbacks, Goldman Sachs analysts including Timothy Moe wrote in a note.

The few bright spots, however, are unlikely to change the trend of earnings revisions for the whole Asian region. Forward profit estimates for the regional index remain below a September high at a time when forecasts for the U.S. and Europe have continued to climb.