Third of mainland companies forecast 2011 losses

PUBLISHED : Thursday, 02 February, 2012, 12:00am
UPDATED : Thursday, 02 February, 2012, 12:00am


About a third of mainland-listed companies have forecast an earnings drop or losses for 2011, the latest sign that the stock markets are still struggling with weak fundamentals even though investors are hoping for a rebound.

According to Shanghai-based data provider Wind Information, 456 A-share firms have either warned investors of losses last year or are expected to post a profit drop.

Mainland-listed companies are required to publish their full-year earnings between January 1 and April 30.

In total, 1,527 companies that expected to show big profit jumps or declines that would result in wild stock-price swings have released earnings-related statements before the full-year balance sheets are made public.

Wind's statistics sent a shiver down the spine of investors, most of whom have been looking forward to a strong rebound this year following losses in the past two years.

'The embarrassingly bad earnings last year could dampen buying interest,' said West China Securities trader Wei Wei. 'Small investors may have to wait for at least one more year before they see a ray of hope.'

The consensus forecast of analysts is that mainland-listed firms will report a 20 per cent earnings increase from a year earlier for 2011. That earnings growth would appear strong enough to support a market rally, but investors have been battered by worries over Beijing's monetary tightening, which has sucked a lot of cash out of the volatile markets.

Listed companies' year-on-year profit growth in 2010 hit 38.8 per cent, but the key Shanghai stock index still lost 21.7 per cent the next year.

UBS Securities chief strategist Gao Ting said pessimism over further earnings drops overshadowed the market while a turnaround in corporate performance could not be expected anytime soon.

Tighter monetary measures including interest-rate increases and curbs on bank lending largely dragged down companies' business growth as they struggled to fund operations. Rising raw material and labour costs further ate into earnings.

Steelmakers were among the top losers, bearing the brunt of the pain brought on by Beijing's macroeconomic controls.

Baoshan Iron & Steel, the listed arm of China's largest steelmaker, said last month that its full-year earnings for last year would drop 43.4 per cent to 7.3 billion yuan (HK$9 billion).

Its smaller rival Angang Steel has warned of losses of 2.15 billion yuan.

'The problem isn't in the absolute earnings figures,' said Citic Securities analyst Cheng Weiqing. 'It's the downward trend that can weigh down the market.'

Some analysts have predicted the market will fall back to lows not seen since 2008, when the mainland economy was hit by the global financial crisis.

If they are right, the market could fall another 27 per cent.