By Gaurav Dogra and Paturaja Murugaboopathi
(Reuters) – Asia's main stock indexes saw their profit forecasts rise by the most in more than three years as the region's semiconductor companies benefit from a boom in generative artificial intelligence.
Strong second-quarter results across a broad range of industries helped push the average 12-month earnings per share forecast for MSCI Asia Pacific index companies up 3.9% in the past month, according to LSEG IBES data, a compilation of analyst estimates.
The increase is especially sharp after downward revisions and small gains in the first seven months of the year.
Forecasts for South Korean companies rose 8 percent, while Taiwanese and Japanese companies also rose 5 percent.
Samsung Electronics Co., for example, is predicting robust AI-driven chip demand this year after its second-quarter operating profit increased more than 15-fold, and Taiwan's TSMC, the world's largest contract chipmaker, raised its full-year sales forecast.
“The upward revision of Asian profit forecasts was mainly due to upward revisions in South Korea and Taiwan on the back of improving semiconductor revenue,” said Min-Yue Liu, equity investment specialist at BNP Paribas Asset Management.
According to the data, EPS estimates for Chinese companies over the next 12 months have risen 1.5% in the past month.
“Many investors are choosing to ignore China, even as some corporate profits beat market expectations,” said Elizabeth Soon, head of Asia ex-Japan equities at PineBridge Investments.
“The ratio of downside to upside earnings expectations is narrowing and the measures to stabilise the property market are a positive indicator of government support.”
Manufacturing profit growth in China improved modestly in July, although domestic demand remains weak.
Meanwhile, companies in Indonesia, Australia and India have revised their revenue forecasts slightly downwards on average over the past month.
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A Reuters analysis of MSCI Asia Pacific index companies that have reported second-quarter profits so far showed that net profit rose 29.2 percent on average from a year earlier, the biggest increase in two years.
The MSCI Asia Pacific Index is up 9.7% so far this year.
By sector, EPS estimates for technology companies rose 7.5%, while EPS estimates for communication services and consumer discretionary sectors rose 5% each. EPS estimates for utilities, known for their high dividends, rose about 20% on expectations of surging demand for electricity in regional economies such as India. EPS estimates for healthcare companies rose 8%.
Analysts expect the Federal Reserve's interest rate cut to boost corporate earnings and lift Asian stocks.
Mark Haefele, chief investment officer for global wealth management at UBS, said the MSCI Asia ex-Japan index has averaged around 10% price appreciation in the 12 months following the first rate cut over the past six Fed easing cycles. He noted that when the dollar falls 5% to 10%, Asian stocks often outperform their U.S. counterparts.
“We are seeing a similarly favorable economic environment, supported by healthy profit growth, with around 60% of companies in Asia ex-Japan beating expectations by the middle of the second quarter,” he said.
(Reporting by Gaurav Dogra and Paturaja Murugaboopathy in Bengaluru; Editing by Vidya Ranganathan and Edwina Gibbs)
