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Slowing global momentum: “minor” risks to Asian earnings

- Earnings outlook and context "Our regional earnings analysis supports our view that Asian earnings may be only modestly impacted by a slowdown in global, largely G3, growth. The 2Q reporting season has started well and sensitivity to the US/Europe is less than most believe. However, we are less confident about what the market will pay for those earnings, if concerns about G3 growth persist and global valuations remain under pressure."
Stressing regional earnings reveals moderate downside "Looking at the relationship between our GLI and Asian earnings, as well as the US/European exposure of Asian corporates, we feel a modest revision on the order of -2% might be necessary. Areas where
we have concerns vs consensus include metals/mining, bulk shipping, India IT and Korea autos."
Separating “minor” setbacks from “major” pullbacks "We look at major and minor index setbacks in the last 15 years and ensuing EPS change. We believe this episode will be ‘minor’ in terms of index risk and profit revisions, largely because starting valuations and EPS growth expectations were not elevated. That said, the ytd valuation decline may not be discounting specific Asian earnings risks, but concerns about medium term global growth, implying less room for valuations to rebound."
2Q has started on track; we look for potential surprises "10% of index cap has reported so far, and numbers are tracking 52% of full year estimates. We highlight potential upside and downside surprises based on margin and sales analysis, and our bottoms-up
analyst estimates."
GoldmanSachs Asia Pacific Portfolio Strategy 20100728

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