Profit growth of 25pc tipped for mainland firms in 2011
Daniel Ren in Shanghai
Profits of mainland-listed companies are expected to grow 16 to 25 per cent this year, offering a ray of hope to the country's beleaguered stock market, which has been battered by worries of further monetary tightening.
Citic Securities made the forecast in a report released yesterday. However, it cautioned that profit growth would slow from about 30 per cent last year since higher prices for raw materials and the central government's controls on end-product prices would dent corporate earnings.
Not all mainland-listed companies have reported their full-year earnings for last year yet.
But based on the earnings forecast for 2010, Citic Securities said the benchmark Shanghai Composite Index, which closed at 2,862.63 points yesterday, would find a floor at the 2,700-point level.
The view was in a stark contrast to Guotai Junan Securities' prediction that the key indicator could crash to the 2,400-point level.
'A forecast of 20 per cent growth appears optimistic, given that the monetary tightening hasn't yet come to an end,' said Guotai Junan analyst Shi Weixiang. 'Brokerages will probably revise their forecasts down in the middle of this year.'
Beijing is expected to raise deposit and lending rates twice more in the first half of this year to cap stubborn inflation, which climbed 4.9 per cent in January.
Some analysts said the consumer price index could jump to as much as 6 per cent this month because of the shopping spree during the week-long Lunar New Year holiday that began on February 2.
Banks - which represent one quarter of the total market capitalisation of the mainland market - will bear the brunt of the pain as Beijing steps up efforts to curb lending, analysts said.
Mainland banks issued 1.04 trillion yuan (HK$1.23 trillion) in credit last month, 200 billion yuan less than the market had expected.
But the amount still exceeded the quota of 900 billion yuan set by the central government.
China has yet to unveil its full-year target for banking loans.
The quota is seen as a key economic policy that Beijing uses to stimulate investment or curb inflation.
Citic Securities said banks' earnings growth would slow to 20 per cent this year from an estimated 26 per cent in 2010.
'Expectations on monetary policies hold the key to the A-share market movement in the near future,' said China International Fund Management fund manager Wang Xuan. 'All eyes will be on whether inflation can be controlled.'
Economists predicted that Beijing would loosen monetary policies in the second half if inflation could be controlled.
The Shanghai index was the world's third-worst performing last year with an annual drop of 14.3 per cent.
Guotai Junan, one of the few Chinese brokerages that predicted a fall in the A-share market last year, said the index could continue to drop this year.
The Shanghai gauge edged up 0.25 per cent yesterday.
It has advanced 2 per cent so far this year.
Last year, mainland-listed companies recorded earnings growth at this rate: 30%