Corporate Profits

The recovery of China’s industrial profits is set to disappoint in 2H 2023. Corporate profits are more sensitive to changes in prices than volumes. Given producers’ selling prices will keep deflating through 2023, industrial profits will only stabilize at a very depressed level even with a mild improvement in volume. A disappointing recovery in industrial profits entails more downward risks for A-share prices in absolute terms. Chinese 10-year bond yields are set to drop to a record low.

Financial commentators, politicians and policymakers have increasingly been blaming stubbornly high inflation on companies pursuing aggressive pricing strategies to boost earnings and margins. In this Special Report, we investigate the concept of “greedflation” – companies persistently raising prices faster than costs are increasing to pad profit margins - and see if the associated conclusions about corporate pricing power and inflation are borne out by the data in the US, euro area and UK.

Indian EPS growth is set for major disappointments vis-à-vis the lofty expectations. Weak domestic demand amid tight fiscal and monetary policy entails more downside in stock prices. Stay underweight.

We Introduce our new macro models for the Eurozone’s equity earnings, which include sectoral forecasts. Find out what they predict for the next six-to-nine months.

Is there a lot of cash on the sidelines ready to be deployed? Would the US recession not be bearish for the US dollar and help EM like it did in the early 2000s? Why can the US investment playbook of the past 15-25 years not be used in this cycle?

Bulls and bears are perplexed because they suffer from recency bias. The investment roadmap and framework of the past 15 to 20 years should not be used to analyze current US financial markets. US corporate earnings will likely plunge substantially even in the case of a mild recession.