China stock market

Chinese profits to grow 10pc next year

Fund manager says corporate earnings will rise as mainland exits slowdown

PUBLISHED : Thursday, 20 December, 2012, 12:00am
UPDATED : Thursday, 20 December, 2012, 4:17am


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Chinese corporate earnings are set to climb as much as 10 per cent next year as the world's second-biggest economy emerges from its slowdown and more people move to cities, Russell Investments says.

Companies that can benefit from an increase in domestic consumption may post even greater growth, said Gustavo Galindo, an emerging-market equities manager for Russell in New York.

"What you have is more and more people joining into the middle class and that trend is very likely to continue," Galindo said. "When the economy improves, they have to buy more goods and services and they are the ones that will be pushing consumer companies to better profits."

Goldman Sachs raised its fourth-quarter and 2013 economic growth forecasts for mainland China on Tuesday to account for gains in production, after data last week showed industrial output climbing the most in eight months last month.

Retail sales last month also rose at the fastest pace since March, adding to signs the economy is emerging from a slowdown that started in the first quarter of last year.

The Russell Emerging Markets Fund that Galindo oversees has returned 16 per cent this year, beating 43 per cent of its peers. The MSCI Emerging Markets Index has returned 18 per cent, while the Shanghai Composite Index posted a return of 0.9 per cent, data shows.

The average earnings per share of companies on the Hang Seng China Enterprises Index grew 4.3 per cent this year. Earnings per share growth for firms on the Shanghai Composite was 17 per cent.

Chinese policymakers have set an initial growth target of 7.5 per cent for next year, the same as for this year, according to two bank executives and a regulatory official briefed on the matter who asked not to be identified because they are not authorised to disclose the information.

The country's new leaders have pledged to support greater urbanisation, with as many as 300 million people moving from the countryside by 2030, to join 600 million already living in cities, the Organisation for Economic Co-operation and Development estimates show.