China stocks outlook gloomy as corporate profits set to falter for second straight quarter

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Guidance disclosed so far does not bode well for second-quarter reports, which may dampen already shaky market sentiment, analysts say

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Zhang Shidongin Shanghai

Published: 1:58pm, 16 Jul 2024Updated: 3:23pm, 16 Jul 2024

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.

Second-quarter profits for the 5,000-odd companies on the mainland’s three exchanges probably fell by an average of 0.9 per cent year on year in the April-to-June period, according to Huaxi Securities. That would mark the second straight quarter of decline after first-quarter profits slid by 4 per cent year on year.

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.