Date
24 September 2018
Corporate earnings slowdown, amid an escalating US-China trade row, could provide a trigger for the next downturn in the Hong Kong stock market, some observers say. Photo: Reuters
Corporate earnings slowdown, amid an escalating US-China trade row, could provide a trigger for the next downturn in the Hong Kong stock market, some observers say. Photo: Reuters

HK equities earnings outlook turns negative

A majority of the listed entities in Hong Kong have completed their interim results announcements as of now.

The results show that the firms’ sales revenue was up 8.87 percent on average in the first six months of 2018 compared to the same period last year, while the earnings per share (EPS) dropped 5.4 percent. It marks the first time in recent years that the EPS has turned in a negative growth.

Given that the US-China trade war has just begun, its impact would be only be reflected later in corporate earnings.

If one looks at the EPS forecasts of analysts and the profit alerts issued by companies, the earnings outlook for the firms has clearly begun to worsen.

The EPS projection for Hang Seng Index constituent stocks is down over 6 percent from a peak at the beginning of this year. That means analysts are gradually trimming their forecasts for blue-chips.

In August, Hong Kong-listed companies issued 216 profit warnings in total, the highest monthly level since 2005.

The number of profit warnings as a percentage of overall earnings guidance has gone up to 56.9 percent in August, from 51.9 percent at the beginning of the year. This ratio kept rising in the first half of September, to 62 percent.

Apparently, corporates, too, are turning bearish on the earnings outlook.

With numerous leading indicators pointing to a grimmer earnings trend, the question now is whether the actual figures confirm the forecasts.

If that, indeed, happens, it would likely be the trigger for the next round of market decline.

This article appeared in the Hong Kong Economic Journal on Sept 13

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal chief economist and strategist

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