Hopes for a recovery in China’s stock market are being dashed by the country’s companies’ deteriorating performance. Some investors are bracing for further damage as the economic downturn is expected to continue.
Corporate performance worsened in the July-September period (third quarter) of this year. According to Morgan Stanley, about 30% of stocks in the MSCI China index missed market expectations in the quarter, up from 18% in the previous quarter.
According to data from Bloomberg Intelligence (BI), earnings per share for all constituent stocks fell 6% from a year earlier, marking the fourth straight quarter of negative growth.
The slow recovery highlights the problems that companies still face even as the Chinese government tries to boost the economy. The worsening real estate crisis, deteriorating profit outlook, and uncertainty surrounding regulatory regulations continue to put pressure on companies.
The current slump in business performance suggests that even if the government’s stock price measures lead to an upturn in market prices, it will be short-lived unless demand fundamentally improves.
China Earnings Still in Doldrums
Source: Bloomberg Intelligence
David Chao, a strategist at Invesco Asset Management, said: “Investors’ expectations were disappointed as the results for the July-September period did not provide a positive sign for investment activity, with only a few weeks left until the end of the year. “I think it’s clear that further policy support is needed to get the Chinese economy back on track.”
Internet companies were one of the few bright spots, but the sector’s profit growth slowed to less than half of the previous quarter, according to BI data.
Analysts including Morgan Stanley’s Laura Wang wrote in a report on November 30 that the downward revision of business results is “likely to continue from the end of the year to the first quarter of next year.” Japan has maintained its “relatively cautious” stance toward China.
Selling Chinese stocks
For investors, weak earnings momentum could provide further evidence for a sell-off in Chinese stocks, as the CSI300 index of mainland Chinese stocks hit its lowest since 2019 this week. Deep-rooted problems, including geopolitical tensions and the housing recession, are seen as hampering the recovery.
While some investors see opportunity in cheap valuations, such as Jefferies Financial Group turning tactically positive on China last week, stocks continue to hit new lows.
Market watchers are now watching this month’s Central Economic Work Conference, where next year’s major economic agenda will be set, for clues about how much additional fiscal and monetary support the Chinese government will provide.
news-rsf-original-reference paywall">Original title:Worsening China Earnings Give Bears More Reasons to Sell (1)(excerpt)
2023-12-06 03:41:48
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