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China’s stock market rally masks shaky pillars amid earnings downgrades, price cuts and policy headwinds
- The earnings upgrade-downgrade ratio for CSI 300 Index companies has weakened since July amid challenges in finance, health care sectors
- Policy makers have sent signals on dialing back policy stimulus as the fight against Covid-19 is won, systemic risks gain attention
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Zhang Shidongin Shanghai
Can China’s stock market sustain its advance in 2021 when expectations on corporate earnings and monetary policy support are weakening?
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As capitalisation surpassed the US$10 trillion mark for the first time since 2015, analysts have turned less bullish on earnings prospects of the biggest companies traded on the Shanghai and Shenzhen bourses over the past five months.
The upgrade-downgrade ratio in the earnings of CSI 300 Index members has slipped to 1.36 in December from a peak of 1.68 in July, according to Bloomberg data. The revisions soured the outlook on banks and healthcare-related companies and favoured raw materials suppliers and technology providers. For S&P 500 members, the ratio eased to 1.99 from a high of 2.21 in September.
That should trigger some concerns among money managers at a time when top policy makers in Beijing are signaling an end to ultra-loose monetary policy to counter the pandemic. Yet, a resurgence in global Covid-19 cases is casting a pall on the recovery outlook. The souring US-China ties have also eroded sentiments on Chinese stocks.
“There are split views on the market now and I don’t see a big catalyst that will further buoy up stocks significantly,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “We will see a normalisation of the monetary policy this year. It remains a big question as well, as to when the fresh wave of the pandemic will be put out.”
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