(9 days ago)
Asia Inc. stumbles through two years of profit shrinkage
First double dip since 1997 financial crisis puts resilience to the test
In the 20 years since the Asian currency crisis of 1997, the region's companies have generally done well. They recovered from that setback and shrugged off the global financial crisis triggered by the U.S. housing meltdown a decade later, thanks in large part to strong growth in China.
Things are looking less rosy of late. China's economy has slowed, pushing commodity prices lower and eroding the profitability and growth of big Asian companies. As a whole, they are forecast to post smaller profits for the second straight year in fiscal 2016, the first time that has happened since the currency crisis.
Nearly half the 122 companies in the Nikkei Asia300 Index that had announced their fiscal 2016 results as of the end of February have seen their profits shrink or have fallen into the red, putting their resilience to the test. This year's outlook is considerably brighter, with market watchers predicting a strong upturn in corporate profits, but who will thrive and who will continue to flounder in today's more challenging environment remains a mystery.
"It is quite surprising, as Asia is the fastest-growing region in the world. If you look at earnings for the past five or six years, they have hardly grown," said Suresh Tantia, an investment strategist for Asia-Pacific equities at Credit Suisse.
The slowdown in China has hit the country's domestically focused businesses hardest. Sixty-four companies based in mainland China and Hong Kong saw their profit shrink by 12%, or a combined $31.3 billion