The deteriorating state of earnings in Asia

When will prices in China and Japan become attractive?

Time to read: 4 min

Slowing global trade has weighed down export-oriented markets in Asia, and the regional earnings outlook has been deteriorating rapidly. Over the past six months, earnings expectations have been revised down 4% for the MSCI All Country Asia Pacific Ex-Japan Index.1 For December, the earnings revision ratio (which compares positive versus negative revisions) fell to 0.39, the worst reading ever recorded outside of a recession.2 The downgrades were broad-based and included all Asian economies, with 13 of 16 sectors (as defined by Merrill Lynch) experiencing at least twice as many downgrades as upgrades.1 Despite this gloom and doom, some Asian companies are beginning to look attractive using our team’s Earnings, Quality and Valuation (EQV) criteria.

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Valuations remain a hurdle in Japan

However, we’ve uncovered two recent opportunities that meet our criteria

Time to read: 2 min

Japan has been a market where investors have been buying growth at all costs, and the opportunity set remains limited from a valuation perspective, in our view. However, the Invesco International and Global Growth team has been able to identify select opportunities so far this year. Invesco International Growth Fund remains underweight Japan, but we added to our exposure in the second quarter in companies that meet our Earnings, Quality and Valuation (EQV) criteria.

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Asia feels the symptoms of China’s declining economic health

China’s weakness has opened the door for new investment opportunities in the region

Time to read: 2 min

“When China sneezes, the rest of Asia catches a cold.” That’s an old saying, but it’s taken on new relevance as Asia’s symptoms have recently worsened. Concerns over the US-China trade war and weaker currencies have taken their toll on the region.

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Tapping the brakes in Brazil

The recent truck driver strike could have lingering consequences for the economy

Time to read: 2 min

Brazil has historically been a market of “feast or famine” for investors. This was illustrated once again over the past several weeks as the economic environment changed fairly dramatically in a relatively short period of time. As of mid-July, economists are expecting 2018 gross domestic product (GDP) growth of 1.8%, whereas as recently as May, they were expecting 2.5% growth for the year.1

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What’s the outlook for Asian equities?

Earnings expectations dim across the region, while China’s reforms remain a bright spot

Time to read: 4 min

The synchronized global recovery is being felt across Asia, but the level of opportunity varies by region. Below, I discuss the macro environment as well as the Earnings, Quality and Valuation (EQV) statistics that influence my team’s bottom-up stock-picking decisions.

Japan: Earnings are a bright spot, but quality is lacking

The Japanese stock market reached a new 25-year high in 2017, and the Nikkei 225 Index posted a 10% return in the fourth quarter.1 However, even with a 22% full-year return for the index, Japan was the weakest international region in 2017,1 and it’s the largest underweight of Invesco International Growth Fund.

On the bright side:

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