Emerging-Market Profit Forecasts at Record as AI Boom Defies War

rtm(kriqab8ek7]4}ioajpy}_media_dl_1.png BloombergArticle content(Bloomberg) — Profit forecasts for emerging-market companies are hitting record highs even as the war in Iran shakes global markets, with investors betting on earnings resilience at Asia’s artificial-intelligence powerhouses.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentAnalysts have upped their earnings estimates for companies in the MSCI emerging equity index by 23%, the fastest pace since 2009 when the global economy was roaring out of recession. Forecasts have continued to go up even after the war broke out, rising by almost six percentage points in the past six weeks, data compiled by Bloomberg show. Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle contentThat means earnings-per-share growth at close to 50% over the coming 12 months, implying record-high profits.Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentFor now, emerging stocks remain some 3% below prewar levels. Yet strategists from Citigroup Inc. and Goldman Sachs Group Inc. are among those who reckon the earnings upgrades are setting up the market for a strong recovery in the coming months. The rise in forward EPS estimates is making equity risk attractive again, according to Citi which added South Korean stocks last week. Article contentThe bullish projections are skewed by forecasts for the Asian technology firms that produce the hardware used by Silicon Valley companies for artificial intelligence networks. Figures from Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Company Ltd suggest demand for AI chips stayed robust even in the first weeks of the war.Article content“The driver here is, of course, US hyperscaler capex,” said Archie Hart, a portfolio manager at Ninety One UK Ltd. “This is effectively an AI gold rush, and Asia manufactures the picks and shovels for the large-language-model and hyperscaler companies in the US.”Article contentArticle contentWhile South Korea, Taiwan and China account for the lion’s share of upgrades, Hart said these are also broadening out to the industrial sector which supplies equipment for AI and defense infrastructure. Meanwhile, commodity and energy names are also now seeing upgrades, with the latter benefiting from higher oil prices. Article contentGoldman strategists expect profits across emerging corporates to grow 23% this year, and see 12% growth, even if South Korea and Taiwan are excluded. Alongside lighter investor positioning and lower stock valuations, that creates “room for relief” as hostilities de-escalate, they told clients, flagging Brazil, South Africa and South Korea as markets most likely to benefit.Article contentStill, the optimism could sour if the Strait of Hormuz doesn’t reopen soon and an initial two-week ceasefire deal isn’t extended. Manik Narain, head of emerging markets strategy at UBS Group SA, says consensus earnings estimates simply haven’t adjusted to the risk of weaker economic growth. He assumes a roughly 10% cut to EPS expectations if the conflict extends through April. Article contentThat would leave emerging stock multiples a touch above average, which is “not exactly cheap,” given the current backdrop and higher US yields, Narain wrote. Article contentHart at Ninety One agrees the rosy earnings outlook could well be upended if oil stays at current levels, raising fears for inflation, borrowing costs and economic growth.Article content“If the nascent ceasefire in the Gulf does not hold, renewed conflict could tip the world into recession in which case all earnings bets are effectively off,” Hart said.Article contentTrending Posthaste: Canadian dollar is being dumped from FX reserves at a record pace. What's going on? 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Posthaste: Canadian dollar is being dumped from FX reserves at a record pace. What's going on? News Why timing the bottom of Canada's roller-coaster real estate market may be harder than you think Real Estate Travel data from March show number of Canadians returning from trips across the U.S. border are stuck at depressed levels Economy Bank of Canada likely to stay put for now, says Paul Beaudry Economy Dell, HP Inc. shares jump on Nvidia acquisition speculation report Information Technology