Analyst warns Asia on threats from a 9% risk to earnings in 2012

The macro ‘What If’ scenario
Visibility on the economic outlook is low. We have asked our analysts to consider the sensitivity to earnings from a 1% lower G10 GDP growth, where our base case is 2.4%. For Asia ex Japan, our economist, Chetan Ahya, calculates this scenario would lead to 0.9-1.4% lower regional growth.

What’s the risk to earnings?
In aggregate, our analysts see roughly 9% risk to earnings – both for Asia ex Japan and Japan – in 2012 under our GDP growth scenario analysis. Six percent of stocks would likely see higher earnings, while just over 20% could see a more than 15% cut to forecasts.

What’s in the price?
Our GEMs strategist, Jonathan Garner, believes the market is discounting a 18-20% fall in AxJ earnings in 2012; in contrast, our bottom up analysts’ base case is for 18% growth. For Japan, our macro team, led by Robert Feldman, believe a 1% lower GDP coupled with a 0.5% drop of the global GDP deflator would suppress TOPIX returns by ~6.3%; the market is down 9.5% since 1 August.