China stocks outlook gloomy as corporate profits set to falter for second straight quarter
- Guidance disclosed so far does not bode well for second-quarter reports, which may dampen already shaky market sentiment, analysts say
Chinese listed companies may deliver lower second-quarter earnings amid insufficient demand and weak consumer spending, pressuring stocks that are struggling to find a fresh catalyst to sustain a rebound spurred by state intervention.
Disappointing earnings reports – due by the end of August – may dampen the already shaky sentiment on stocks as investors have already discounted a flurry of state supportive measures that helped drive an earlier rebound. The Shanghai Composite Index rose 0.1 per cent on Tuesday, trimming to about 6 per cent its decline from this year’s high in May.
“There’s very limited room for an improvement in the interim reports, and the pressure is still out there,” said Zhang Xia, an analyst at China Merchants Securities.
Guidance and preliminary results that companies have already disclosed do not bode well for second-quarter reports. As of last week, only 40 per cent of the listed companies that had posted such statements gave positive guidance, based on 1,508 companies, or 23 per cent of the total, according to China Merchants Securities.
Official profit data on industrial companies, which analysts say strongly correlates with earnings for listed companies, also points to lacklustre second-quarter results.
Industrial profit growth slowed to 0.7 per cent in May from 4 per cent in April, according to the National Bureau of Statistics, as declining producer prices eroded margins. The June figure is due next week.
Companies with exposure to overseas sales, such as makers of appliances, textiles and apparel, are expected to be the bright spots, while electronics companies and carmakers may also post profit growth due to strong demand, according to Haitong Securities and China Merchants Securities. Property developers, financial companies and makers of building materials will be the main drags on profit growth, they said.
Barclays cut its China growth forecast for 2024 to 4.8 per cent from 5 per cent, Goldman Sachs reduced its projection to 4.9 per cent from 5 per cent and JPMorgan downgraded its estimate to 4.7 per cent from 5.2 per cent.
“Fears of an entrenched deflationary spiral in China have spooked short-term players,” Kelvin Wong, a Singapore-based analyst at Oanda, said in a research note on Monday. “Current piecemeal stimulus measures to halt the slide of its depressed property market have failed to see a meaningful reversal in home prices and take-up rate of unsold homes, and the growth seen in industrial production has failed to trigger a positive spillover to retail spending.”
