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Equity market: Scarcity of growth

Given the current weak operating environment for most corporates, the equity market is experiencing scarcity of growth.  With that said, equity investors will be focusing on earnings growth to determine their portfolio mix going forward.

In this regard, 2Q15 corporate earnings announcements, of which most would be released in the two remaining working days of this week, would provide important clues in determining growth profiles of various stocks and sectors.  

Despite our expectations of an earnings contraction of 5.1% y-y in 2Q15 operating profit and a 4.2% y-y reduction at the bottom-line level for the overall market (exhibit 2), our latest channel checks suggest that our profit estimates may still be too aggressive. Of particular interest would be the banking sector (some 26% of total market capitalization of the index), which is likely to report disappointing performance due to slow loan growth, higher NPLs, soft economic growth, subdued government spending and a weak IDR.

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