Japan’s 2022 earnings season: Key takeaways

Shrikant Kale, a MicroStrategy Analyst from Jeffrey's Hong Kong, recently shared his analysis of Japan's third-quarter earnings season. According to Kale, Japanese companies have been facing cost pressures over the past year, leading to negative margin revisions. The top line strength of these companies, which remained resilient in the past, is also starting to come under pressure. In September 2022, 70% of the top Japanese companies delivered a top line beat, but this number declined to only 56% in December. Similarly, only 45 comparison companies managed to deliver an earnings beat, the second-lowest in the past seven years.

When discussing the sectors that suffered the most misses during the last earnings season, Kale noted that the fourth quarter of 2022 was relatively different than the previous quarter due to the EU's reopening. As a result, sectors like consumer services and transport benefited a lot, with strong operating income beats. Sectors like tech hardware and pharma also delivered strong operating income. However, sectors such as consumer durables, capital goods, and commodities, like materials and energy, suffered disproportionately.

Kale also discussed the effect of China's exposure on Japan's earnings season and the forecast for China's reopening beneficiaries. In the past, Japanese companies with significant exposure to China suffered during the country's lockdown, and only 30% of them managed to deliver operating income beats. However, with China reopening, Kale believes that China reopening beneficiaries will be a core part of his portfolio this year, replacing Japan reopening beneficiaries, which have almost exhausted their story. According to Kale, the stars are aligned for China's opening beneficiaries, with supportive monetary and fiscal policy, low inflation, and stabilizing earnings growth.

To know more, watch the full interview.