SINGAPORE -- Profits at Southeast Asia's largest companies fell for the first time in nine quarters hit by the U.S.-China trade war and falling regional currencies.
Calculations by the Nikkei Asian Review show that profits for 95 companies in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam fell by 1.5% for the July-to-September period. The combined results of the these Nikkei Asia300 companies fell to $14.4 billion from the same period a year ago, based on average exchange rates in the corresponding periods, according to data from QUICK-FactSet.
That compares with the figure for the April-to-June quarter of $14.8 billion, which represented a 14% rise from the same quarter in 2017.
The weakness in corporate earnings is in line with a slowdown in regional economies. Indonesia, Malaysia, the Philippines, Singapore and Thailand all reported slower economic growth in the July-to-September quarter from a year ago.
One of the main reasons for the slowdown is the escalating trade war between the U.S. and China. Export-oriented companies were hit when the world's two biggest countries imposed tariffs on each other's imports in July that were ramped up over the quarter.
Thai building materials conglomerate Siam Cement saw a 20% year-on-year net profit decline in the July-to-September quarter in local currency terms.
"The persistent trade war has started biting our exports in the third quarter of this year," said President and CEO Roongrote Rangsiyopash during a news conference announcing the results. "The U.S.-China spat raises uncertainty of our trade partners' importing policies and that cut our exports."
Weaker currencies in emerging markets affected businesses that operate in multiple countries. Southeast Asia's biggest mobile carrier Singapore Telecommunications, which has affiliates in emerging economies including Indonesia and India, was one of those affected.
Its net profit dropped 77% in local currency terms in the quarter from a year ago. The Indonesian rupiah and Indian rupee were among those that weakened considerably against the dollar during the period.
Asia's largest hospital chain IHH Healthcare, a Malaysia-based company whose results announced on Nov. 27 were not included in the survey, tumbled into the red with a net loss of 104 million ringgit ($24 million). IHH owns a hospital chain in Turkey, where the local currency, the lira, fell against the dollar. The company attributed its poor performance in part to "higher forex losses on the subsidiary's non-lira loans."
Rising crude oil prices during the quarter hit airlines' margins. Singapore Airlines and Garuda Indonesia saw profit declines of 81% and 95%, respectively, while Philippine budget carrier Cebu Air fell into the red. Singapore Airlines Senior Vice President for Finance Stephen Barnes said at a results briefing that "the impact of higher fuel costs [was] really coming through."
There will be little respite for Southeast Asian companies in the months ahead as U.S.-China trade tensions drag on and the U.S. Federal Reserve continues to hike interest rates.
Most Southeast Asian economies rely on trade and are heavily integrated in the supply chains of Chinese and U.S. makers.Moreover, emerging markets could see investors pull out amid higher U.S. rates.
Central banks in the region face having to prop up currencies with tighter policy. Combined with the delayed effects of high oil prices, this threatens to dampen domestic consumption. Under the circumstances, companies will need to brace for headwinds in the coming months.
The International Monetary Fund in October downgraded next year's growth estimate for the ASEAN-5, comprising Indonesia, Malaysia, Philippines, Thailand and Vietnam, by 0.1 percentage point to 5.2%. It revised down China's by 0.2 percentage point to 6.2%.
Singapore's Ministry of Trade and Industry on Nov. 22 said it expects economic growth in 2019 to come in between 1.5% and 3.5%, revising down from an earlier estimate of 3.0% to 3.5%, citing risks in the global economy.
"This weakness in corporate earnings is still expected to continue for the next quarter, geared by the rate hikes in the U.S.," said Tomohiro Okawa at P.S. Oskar Group. "But [Federal Reserve Chairman Jerome] Powell's recent speech suggests a pause of hikes next year and this would ease [pressure on] Southeast Asian companies," he added.
Eri Sugiura, Nikkei staff writer contributed to this story.