Citigroup Inc expects zero growth in global earnings this year as COVID-19 throttles economic growth, and it warns that even its new forecast might prove too optimistic.
The bank’s call on earnings per share (EPS) follows moves on Thursday by Wall Street peers Goldman Sachs Group Inc and JPMorgan Chase & Co to cut profit estimates on US companies. Goldman expects no earnings gain for US firms this year.
“Given obvious further risks to global GDP, it seems prudent to forecast flat global EPS in 2020,” Citigroup analysts including chief global equity strategist Robert Buckland wrote in a research report.
The bank expected 4 percent growth at the start of the year.
“Maybe even flat EPS is too optimistic,” the team wrote. “If the virus slows global economic growth to 2.0 percent in 2020, our models suggest global EPS could contract around 10 percent.”
Global equities have sold off precipitously, with MSCI’s all-country stock index dropping more than 10 percent over its seven consecutive days of decline. It was last down 0.5 percent today at 2:15pm Hong Kong time. The S&P 500 is down 11 percent so far this week, in the fastest correction from a record high in history.
Investors have been scrambling to evaluate the outbreak’s effects on the global economy as it spreads to more countries, throws supply chains into chaos and restricts movement of people and goods.
Citigroup lowered its target on the local-currency MSCI All Country World Index to 660 by the end of the year, down from a previous target of 690. That would still mark a gain of about 7.5 percent from current levels.
“We would prefer it to be closer to panic before going all-in. It is not there yet,” the analysts said. “Our global bear-market checklist still says buy this dip, although our US panic-euphoria indicator says not yet.”
Goldman Sachs also lowered its earnings forecasts for Asia ex-Japan stocks as the outbreak looks more severe than it did originally, prompting the firm to reduce GDP growth predictions for China and the region.
Consensus expectations of 13 percent profit growth “are likely to fall,” analysts including Timothy Moe wrote in a research report, citing earnings sensitivity to China’s economy and supply chain linkages.
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