From smaller players to industry leaders, about 230 or 15 per cent of Hong Kong-listed firms have warned of sharply lower interim profits - and even losses - since April and analysts say the worst is yet to come.
Retailers, airlines, carmakers, consumer product manufacturers and steel producers have issued profit warnings in the lead-up to the interim reporting season, painting a grim picture of lower profits and rising losses for the first six months of the year.
Most of them blamed the sharp slowdown on the mainland, which is hurting demand, while stubbornly high raw material prices and operating costs as well as punishing competition are eating into margins and slashing profitability. To add to their woes, a volatile stock market has caused some companies' investments in shares and derivatives to shrink, resulting in losses.
Many have also been caught flat-footed by a flat yuan exchange against the US dollar so far this year and suffered foreign exchange losses after the yuan's 4 per cent gain last year generated substantial exchange windfalls for investors. The yuan was trading at 6.3729 per US dollar yesterday, compared with 6.3606 at the beginning of this year.
Analysts and accountants broadly said the most worrying question posed by the flood of profit warnings was stark: if industry leaders are struggling, how can the smaller players survive?
'The profit warnings show tough economic and operating challenges,' said Philip Tsai, a Deloitte Touche Tohmatsu partner. 'They signalled uncertainty in the EU and a slow economic recovery in the US, increased labour costs, lower government subsidies and tighter and conservative bank lending policies.'