(Reuters) – Asian companies’ earnings went down in March for the first time in seven quarters. This was caused by a slowdown in demand because of lockouts in China and a decrease in margins because of rising input prices.
The cumulative earnings of Asia’s top 1,500 big and mid-cap businesses by market capitalization and those that are covered by at least three analysts saw a year-on-year fall of 3.2 percent in the March quarter, according to a study conducted by Reuters.
GRAPHIC: Asian businesses’ quarterly profit (https://fingfx.thomsonreuters.com/gfx/mkt/gdpzyeoyevw/Asian percent of companies’ percent of quarterly profit.jpg)
That was the first time the price had gone down since June of 2020.
The information also showed that their average net margins were 5.86%, which was the lowest percentage in seven consecutive quarters.
A graph showing the net margins of Asian companies (available at: https://fingfx.thomsonreuters.com/gfx/mkt/jnpwezneopw/Asian%20firms%20net%20margins.jpg)
According to Herald van der Linde (NYSE: LIN), head of equity strategy for Asia Pacific at HSBC, “higher commodity prices are impacting profit margins as companies struggle to pass on higher input costs to their consumers.” This was said in response to the fact that higher prices for commodities are hurting profit margins.
Investors fled regional stocks due to fears that companies may not be able to deal with increasing interest rates and surging inflation levels, which resulted in a fall in profits. Investors abandoned regional equities at the same time.
The rise of COVID-19 cases in China caused a slowdown in the country’s commercial activity and spending during the first quarter. This had an effect on regional firms that exported goods to the Asian nation as well.
According to the statistics, corporations in Malaysia and South Korea that get a significant amount of their sales from China had a decrease in their first-quarter profits of 18.3 percent and 18.9 percent, respectively. This was a significant reduction from the previous period.
Graph depicting the percentage of profit growth in each country in the first quarter of 2022 (https://fingfx.thomsonreuters.com/gfx/mkt/zgvomegmxvd/Breakdown%20by%20country%20).%20profit%20growth%)
20in% 20Q1 percent 202022.jpg)
In the midst of the automotive industry’s supply-chain turmoil, Toyota Motor (NYSE: TM) reported a 33% drop in March-quarter operating profit and issued a warning that unprecedented increases in raw material costs could shave a fifth of its full-year profit.This comes after the company warned that the rising costs of raw materials could cut a fifth of its full-year profit.
After two years of pandemic-driven demand, demand for Lenovo’s personal computers began to decline, resulting in the company reporting its worst quarterly sales increase in seven quarters. Lenovo is the biggest PC producer in the world.
Some economists anticipate that increasing interest rates will have a further impact on the profitability and margins of corporations in the following months.
In a bid to battle inflation and avoid foreign outflows, South Korea’s central bank has already hiked interest rates three times this year, while India’s central bank has raised rates twice.
“As long as inflationary pressures remain, we do anticipate that central banks will take more restrictive action. Increases in the cost of borrowing money would almost surely be detrimental to leveraged corporations. “According to Zhikai Chen, who serves as the head of Asian equities at BNP Paribas Asset Management (OTC: BNPQY),
On the other hand, he stressed that the effect on financing should be manageable because Asian companies, especially those that were hit hard by the Asian financial crisis, have good leverage ratios.
According to the statistics, the earnings of Asian firms are only predicted to climb by 6.7 percent in 2022, which would be the lowest increase in profits in the last three years. Analysts still anticipate that the slowdown in China will continue for some time.
According to Amman Patel, an investment strategist at Credit Suisse, “in the near term, we think slowing economic growth, fading operating leverage, and the lagged effect of rising input prices (particularly oil) are likely to impact margins more in 2022.” [Citation needed] “We think that in the near future, slowing economic growth, lessening operating leverage, and the delayed effect of rising input prices (especially oil) are likely to make it harder for companies to make money.
A graphic representation of a breakdown of net margins by industry can be seen at the following link: https://fingfx.thomsonreuters.com/gfx/mkt/egvbkwdykpq/Breakdown%20by%20sector%20for%20net%20margins.jpg.
A graph showing the breakdown of profit growth by industry in the first quarter of 2022 (https://fingfx.thomsonreuters.com/gfx/mkt/byprjdyjgpe/Breakdown%20by%20sector%)
20% of profits; 20% of revenue growth
20in% 20Q1 percent 202022.jpg)