The fall of china stock market It has become a political problem. The country’s cabinet urged action and state-owned companies have begun buying.
At the same time, fears are growing that China’s listed companies announce disappointing results in the coming weekscompounding the downward pressure on the world’s worst-performing stock market today.
According to Morgan Stanleylisted company earnings are on track to miss forecasts for the 10th consecutive quarter, which will lead to a decrease in valuations. Forsyth Barr Asia Ltd. notes that there are a multitude of negative factors that will especially weigh on the profits of banks and consumer-facing companies.
Stock market crisis in China: the data to come
“The upcoming 2023 annual reporting season and 2023 fourth quarter results will be another failure,” Morgan Stanley strategists Laura Wang and Catherine Chen wrote this week in a research note from Hong Kong cited by the Bloomberg agency. “Significant downward revisions to earnings estimates are likely, limiting opportunities for valuation appreciation“.
Chinese companies’ profits are coming under pressure as the economic recovery stalls due to a long-running real estate crisis and growing signs of deflation. A number of home price and property-related spending indicators have disappointed this year, even as gross domestic product meets the official target.
Earnings estimates for members of the MSCI China Index have fallen nearly 1% since the start of this year, according to data compiled by Bloomberg. This compares to a 0.2% increase for those in the S&P 500 Index.
Citigroup lowered profit estimates for Great Wall Motor Co. Ltd. after the automaker flagged a 15% decline in net profit for 2023. Jefferies lowered its net profit estimates for China Resources Beer Holdings Co. over 2023-2025 due to expectations of slower sales growth in both the beer and baijiu segments.
Compiling earnings forecasts for Chinese companies is relatively difficult due to a general lack of transparency and companies’ reluctance to provide accurate earnings guidance. The country’s listed companies are expected to report profits rose 5.8% in the fourth quarter from a year earlier, according to an analysis by China Merchants Securities based on the CSI 300 Index.
The benchmark index has fallen 4.5% in 2024, after three consecutive years of record declines. The Hang Seng China Enterprises index of mainland companies listed in Hong Kong has fallen more than 7% since early January, making it the lowest-performing global stock index.
A palliative for pessimism
Pessimism eased this week following reports that authorities are preparing a package of measures to stabilize the weakened stock market. As reported by Bloomberg on Tuesday, citing people familiar with the matter, policymakers are seeking to mobilize around 2 trillion yuan ($378.44 billion) to buy shares in the mainland market.
The reported size of the package is larger than before in 2015, but may not be enough on its own to revive the struggling stock market, Morgan Stanley analysts wrote. China will cut the reserve ratio by half a percentage point on Feb. 5 to inject liquidity into the economy, People’s Bank of China Governor Pan Gongsheng said at a news conference on Wednesday.s. Although the market rescue plan is positive, there are concerns that it will not address the weak underlying economy that is hurting profits.
Source: Ambito
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