Stocks tumble as investors worry over corporate earnings
Profit warnings by mainland companies, including China Life Insurance, led to a stock market decline yesterday as investors braced for more dismal earnings forecasts amid the global economic slowdown.
China Life, the country's largest insurer, posted its biggest drop in four weeks after the company estimated its earnings last year fell by more than 50 per cent, its first profit warning since being listed in Hong Kong in 2003.
Shares of the state-owned insurer closed at HK$20.30, down 7.52 per cent. Ping An Insurance (Group), its closest rival, fell 6.91 per cent to HK$33. PICC Property & Casualty, the country's largest non-life insurer, shed 10.57 per cent to HK$3.30.
Angang Steel, the listed arm of the mainland's second-biggest steelmaker, fell 12.88 per cent to HK$6.90, the lowest level in more than a month, after the company forecast a bigger than expected 55 per cent earnings drop last year.
Other mainland steel stocks also declined, with Maanshan Iron and Steel losing 7.75 per cent to HK$2.38 and Baoshan Iron and Steel dipping 0.75 per cent to HK$5.31.
Fresh concerns over the profitability of mainland insurers emerged as analysts suggested the outlook for the industry remained weak and the latest profit warning provided a solid opportunity for selling stocks.
'The warning is below consensus forecast, although it is still within market expectations,' said Olive Xia, an analyst with Core Pacific-Yamaichi International. 'Insurers will continue to suffer from the low treasury bond yield and deteriorating operating environment going into 2009.'
Mainland insurers are among the most sensitive to changes in the stock market. Despite sitting on a large position of bonds and deposits, most of their investment gains were accumulated during the stock market boom in the past two years.
According to the China Insurance Regulatory Commission, mainland insurers collected 978.41 billion yuan (HK$1.11 trillion) in premiums last year, a 39.1 per cent year-on-year increase, the biggest since 2002.
Ben Lin, an insurance analyst with Nomura Securities, said in a report that while headline growth was likely to slow, insurers' focus on improving product mix could bring about margin enhancement and improved profitability.
'In the China financials sector, we prefer insurers over banks,' he said. 'While insurers are trading at a premium to banks on price-book values, insurers are likely to withstand the downturn better than banks.'
