By Patturaja Murugaboopathy and Gaurav Dogra
(Reuters) - Slower growth at the developing world's big homegrown companies in the second quarter has led analysts to cut their profit and price estimates sharply since the end of June, according to a Reuters analysis of data on thousands of listed firms.
The combined profit for 7,000 firms covered by Refinitiv data, measured in U.S. dollars and including Asian, European and Latin American firms, rose 14.5 percent in the April-June quarter compared to the same quarter of 2017, the weakest in a year and down from 19.5 percent in the first quarter.
That reflected a cocktail of factors led by the dollar's strength against all but a handful of currencies, rising U.S. and European interest rates and the impact of the intensifying trade war between the United States and China.
Emerging market firms quarterly growth https://reut.rs/2OIkdM7
Major companies from four countries - Malaysia, Argentina, Mexico and South Korea - actually showed declines in overall profit compared to a year earlier.
By sector, industrial and tech firms had the biggest falls, hinting at a drop-off in demand for cheaply assembled exports from China and other Asian economies, while consumer firms also saw depressed profits.
Mean estimate change in local curreny terms https://reut.rs/2OIn73t
More pressure is building, with analysts cutting their profit estimates for the next four quarters. Refinitiv data shows earnings forecasts for the current fiscal year at a larger group of 13,000 firms are down by 5.5 percent on average in the last 90 days.
Analyst estimate change for emerging markets https://reut.rs/2PiJDwT
For now, relatively small contractions in local currency earnings suggest the dollar's strength is at the heart of these moves.
However, fear around the impact of the tariffs placed on hundreds of billions of dollars worth of goods by China and the United States is also growing.
"Our baseline view is shifting in the direction of a deeper and more prolonged conflict, where the impacts on China, U.S. growth and commodity and FX pricing could be more disruptive," said J.P. Morgan analysts in a note.
"We expect some slowdown in capital equipment spending in tariff-related sectors in (emerging Asia), with some pushback on growth and employment."
U.S. RATES
The boom in investment in the high yields of the developing world, funded by cheap and plentiful capital pumped into the economy by major central banks since 2008, has ground to a halt this year as U.S. interest rates began to rise.
By contrast, the Refinitiv data showed U.S. companies' profits were expected to grow 24 percent on average in 2018, the fastest since 2010.
"The primary symptoms of the post-January tribulations of emerging equities are their inferior outlook for U.S. dollar EPS growth versus that of the U.S. itself," said Alexander Redman, global emerging market strategist at Credit Suisse.
Crucially for countries like Turkey or India, which import most of their oil, higher U.S. rates have come along with a recovery in global crude prices to $80 while also driving the U.S. dollar - in which oil is priced - broadly higher.
Against the MSCI index of emerging market currencies, the dollar is up more than 5 percent since early May and 7.5 percent since February, accounting for much of the change in forecasts.
"Rising oil prices will affect corporate margins and a stronger U.S. dollar will increase the FX volatility, which means higher hedging costs and earning volatility," said Willie Chan, a strategist at Maybank Kim Eng Securities.
(Reporting by Patturaja Murugaboopathy, Gaurav Dogra and Aaron Saldanha in Bengaluru; editing by Patrick Graham)
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