Japan is emerging as the star of Asia’s latest earnings season, with most companies reporting higher-than-expected profit growth as businesses continue to benefit from Prime Minister Shinzo Abe’s economic policies.
Earnings per share, excluding some items, at 159 companies on Japan’s Topix index have beaten analyst estimates while only 97 missed, according to data compiled by Bloomberg. By comparison, in the MSCI Asia Pacific index that excludes Japan, only 74 companies topped projections versus 96 that fell short.
As red flags keep sprouting in China, no other major Asian market is looking as healthy as Japan. A stock market boom is helping Tokyo-based banks reap higher profits and the weak yen continues to bolster earnings for exporters such as Toyota Motor Corp., which on Tuesday reported record quarterly profit of $5.2 billion.
“Japan is surpassing everyone else and showing stability,” said Yoshinori Shigemi, a global market strategist in Tokyo at JPMorgan Asset Management (Japan) Ltd.
“For emerging markets, it’s undeniable that economies across Asia are slowing down. It’s been going on for some time.”
The strength seen in earnings has yet to be reflected in economic indicators such as household spending, which has fallen for 14 of the past 15 months. Also, Japanese workers saw average compensation fall 2.4 percent in June and economists estimate gross domestic product last quarter only grew about 1 percent from a year ago.
The Abe administration has been piling pressure on Japanese companies to step up spending at home on factories and wages given how healthy corporate profits have been. Halfway into this earnings season, the number of companies posting profit growth has been double those recording declines.
And all 10 major industries in Japan have seen positive earnings surprises outweigh negative ones. In technology, the number of companies delivering earnings that beat estimates — including Sony Corp., Nintendo Co. and Panasonic Corp. — were almost double those that missed.
One major reason for the earnings bonanza is the yen, which has been steadily weakening since late 2012 as part of Abe’s push to revive the Japanese economy. In early June, it touched a 13-year low of 125.86 against the dollar.
Corporate profits in Japan stand out when compared with other countries in the region. For example, negative earnings surprises outweighed positive ones by two to one in Indonesia’s Jakarta Composite Index, according to data compiled by Bloomberg.
Earnings misses were also predominant in South Korea’s Kospi, India’s S&P BSE 500 Index, Singapore’s FTSE Strait Times All Share Index and Taiwan’s Taiex. Still, most markets in Asia are not as far along in their reporting seasons as Japan.
Though earnings have yet to go into full swing in China, the drumbeat of negative indicators in the world’s second-largest economy keeps getting louder. Auto sales are falling, threatening to aggravate a downturn in manufacturing, while the recent collapse of the Chinese stock market is threatening to unravel previous gains in the financial sector.
Chinese corporate earnings, particularly those of state-owned enterprises, are slumping too. Industrial profits fell in June, according to the National Bureau of Statistics.
Meanwhile, the windfall in earnings continues in Japan. Analysts foresee the nation’s companies improving on their record profits this year and next, according to estimates compiled by Bloomberg.
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