Wednesday, November 6, 2013

China’s Profit Margin May Be Bottoming (excerpt)

Emerging markets, which account for 20% of the World ex US MSCI, have lost their earnings groove. The forward earnings for the EM MSCI rose to a new record high during 2009 through mid-2011. However, it stalled since then and continues to flat-line. As I’ve noted before, the forward earnings of EM MSCI has been highly correlated with the CRB raw industrials spot price index since the mid-1990s. The commodity index has been slowly losing altitude since the start of the year.

China accounts for 4% of the World ex-US MSCI, and 19% of the EM MSCI. The forward earnings of the China MSCI also flattened out around mid-2011, but it’s been edging up into record-high territory this year. Yesterday’s FT included a story titled, “Chinese manufacturers feel squeeze of stronger renminbi.” While that may be so anecdotally, the forward profit margin of the China MSCI actually might have started to bottom late last year.

Today's Morning Briefing: Global Earnings Tour. (1) The earnings “hook.” (2) A recurring pattern. (3) Does 2013 matter anymore? (4) Forward earnings climbing to new record highs almost weekly. (5) US ahead of the pack in world forward earnings derby. (6) Europe’s forward earnings still flat-lining. (7) UK’s is surprisingly weak given strong economic indicators. (8) Japan’s was boosted by Abenomics. (9) Emerging markets' forward earnings aren’t emerging. (10) Industrial commodity prices aren’t helping EMs. (11) China’s forward earnings at record high as profit margin seems to be turning up. (More for subscribers.)

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