Asian earnings growth to surpass US and Europe

Earnings growth in Asia is forecasted to outpace that of the US and Europe for both this year and the next, according to a recent analysis by CLSA, which cites Bloomberg’s projections. This optimistic outlook aligns with the Reserve Bank of India’s (RBI) latest monetary policy report, predicting a robust growth rate of 7.2 per cent for India in the fiscal year 2025.

Projections for Earnings Per Share growth (EPSg) indicate that the Morgan Stanley Capital International (MSCI) Asia-Pacific index will see a substantial increase of 15.0 per cent in 2024, followed by a steady 11.9 per cent in 2025. In contrast, the MSCI World index, which includes global companies, is expected to grow by a more modest 7.9 per cent in 2024 and 11.9 per cent in 2025.

The US market, represented by the S&P 500, is forecasted to grow by 10.5 per cent in 2024 and 13.1 per cent in 2025. Meanwhile, Europe’s growth, represented by the MSCI Europe index, is predicted to decline by 5.2 per cent in 2024, before recovering to an 8.1 per cent increase in 2025. Emerging markets (MSCI EM), driven largely by Asian economies, are expected to see the most significant growth with an 18.1 per cent increase in 2024 and 14.7 per cent in 2025. The strongest performer among these, MSCI Asia excluding Japan, is expected to achieve a remarkable 22.9 per cent growth in 2024 and 15.3 per cent in 2025. This highlights the shifting focus towards Asia as a critical driver of global economic growth.

India stands out in the Asian growth narrative, with the RBI’s projection of a 7.2 per cent growth rate for 2025 reflecting strong domestic economic fundamentals. This growth is attributed to various factors, including strong consumption, a resilient services sector, and a boost in investment and infrastructure development. Key metrics such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and net margins are being closely watched, with many Asian stocks showing continued expansion in these areas. Companies that consistently improve their Return on Equity (ROE) and Economic Value Added to Invested Capital (EVA/IC) are gaining significant attention.

In addition to earnings growth, the rapid advancement of artificial intelligence (AI) technologies is contributing to the positive outlook in the Asian market. The rising demand for AI capabilities and associated technologies, such as data centres and the requisite computational power, is expected to bolster economic growth further. A recent report by Yew Kiang Wong, Head of REITs Research, emphasises the potential for significant gains in the ASEAN region from these technological advancements.

The stark contrast in earnings growth forecasts between Asia and other regions underscores the shifting dynamics in the global economy. Investors and analysts are increasingly looking to Asia for growth opportunities, driven by strong economic fundamentals, technological advancements, and favourable demographic trends.

Fidelity Asian Values Plc (LON:FAS) provides shareholders with a differentiated equity exposure to Asian Markets. Asia is the world’s fastest-growing economic region and the trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price.

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