Every week we calculate the relationship between various factors and the performance of equities around the world. We do this to understand what factors--like beta, valuations or fundamental factors--are most highly associated with the movement in equity prices. Over the last year earnings momentum has moved to center stage in Asia. In the table below we divide the MSCI Asia-Pacific Index into deciles of companies with the highest to lowest 1 month change in earnings estimates, calculate the performance of each decile and then calculate the coefficient of determination.
MSCI Asia-Pacific Factor Score - 1 Month Change in EPS Estimates
Over the last week earnings momentum alone has explained 87% of the variation in developed Asian equities, while it has explained 89%, 93% and 90% respectively of 1 week, 1 month and 1 year performance. EPS momentum has been and continues to be the most important factor driving the performance of stocks in developed Asia.
The sub-industries with the highest earnings momentum in developed Asia are:
In turn, the sub-industries with the weakest earnings momentum in developed Asia are: