Markets globally expect earnings to rise over the next 12 months. Whether in the US or emerging markets, everywhere the expected earnings-per-share are above the current ones. Whether this will happen is doubtful.
With ISM Manufacturing at 47 and that of the Eurozone’s at 45.5, central bank interest rates at their highest levels in years with inflation still high, a growth slowdown or even recession seems to be in the making. Looking at the MSCI World Index, earnings per share fell significantly during each major growth slowdown and recession. So you have to be a staunch supporter of the ‘no landing’ theory to see profits growing over the next 12 months as well.
But looking at some of my key ‘global earnings indicators’, I see little room for optimism. Take Korean exports, for example, an indicator of global economic activity that should not be underestimated. Those have been on a downward trend for months. And as the chart below shows, those falling Korean exports point to a drop in global earnings per share of around 20 per cent. Incidentally, the premise of ‘you have to compare by Covid with the level of two years ago’ does not hold either. In that case, exports have also fallen sharply.
And comparable profit indicators are Singapore’s ‘Electronics Exports’. Also a typical global growth indicator. And so the picture below is the same. Based on these export figures, you should also expect a big drop in profits.
Only one more. Here are global semiconductor sales versus global earnings per share. Same thing, although slightly less extreme. So those stories that the semiconductor market has bottomed out are nice, it doesn’t mean that profits are safe with that.
So all three of the above indicators would have to be wrong for profits to just grow anyway. I’m not ruling anything out, but I don’t expect it.
Jeroen Blokland is founder of True Insights, a platform that provides independent research to build diversified multi-asset portfolios. Blokland was most recently head of multi-assets at Robeco. His chart of the week appears every Monday on Investment Officer Luxembourg.