Thursday 18, May 2017 by William Mullally

Strong Q1 results in emerging markets

The earnings season in emerging markets (EM) is well advanced and all three regions have reported strong Q1 2017 results. Emerging Asia is our preferred region as we expect sales and earnings growth there to be more sustainable. We particularly favour countries with high exposure to the IT sector, writes Heinz Ruettimann, Strategy Research Analyst Emerging Markets, Julius Baer

In EM the Q1 2017 earnings season is well advanced and 705 out of 995 (or 70 per cent) of the companies have reported their sales and earnings numbers. As usual, emerging Asia comes in first and 524 out of 693 firms (or 75 per cent) have reported, followed by Latin America where 98 out of 146 firms (or 67 per cent) have reported, and emerging Europe, Middle East and Africa (EMEA), where 79 out of 156 companies (50 per cent) have reported their sales and earnings numbers. In all three regions, year-over-year results have been strong.

 In emerging Asia, market cap-weighted sales growth is up +15 per cent, while market cap-weighted earnings growth rose +21 per cent. In Latin America, sales growth grew +11 per cent, while earnings growth increased +26 per cent. In the EMEA region, sales climbed +23 per cent, while earnings growth shot up 55 per cent. Over the last 12 months, EM have performed well and investors need to be more selective as key headwinds such as diminishing global liquidity, leverage and pressure on commodity prices remain the same. All three regions have seen a jump in sales and earnings growth compared to a year ago.

 Key to our emerging market strategy is to focus on countries where we expect sales and earnings growth to be more sustainable over the next few quarters. In this respect, emerging Asia is our preferred region. The macroeconomic backdrop of most emerging Asian countries is more robust as most of them run a current account surplus. In addition, the return on equity is more stable and the region as a whole has a tilt towards the higher-growth information technology (IT) sector.

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