Across The Border | Chinese investors target cyclicals to ride on improved first-half earnings
Raw material companies are reporting improved earnings as China reports that it is ahead of schedule to cut excess supply
Chinese traders are snapping up cyclical stocks as favourite bets to speculate on interim earnings season that kicked off last week.
A gauge of raw material companies had climbed 5.3 per cent through last week this month as the best-performing industry group on the CSI 300 Index.
Coal, cement, steel and commodity producers that rely on the economic strength as main revenues, from Shaanxi Coal Industry to Huaxin Cement, have all rallied, as they forecast profit jumps or returns to profitability for the first half, thanks to strained supply amid a government-led drive to eliminate unneeded capacity.
While futures contracts spanning from hot-rolled bars used for building houses to coal have risen more than 20 per cent over the past month in Shanghai and Dalian futures exchanges, Zheshang Securities and Shanghai Jingxi Investment Management say raw-material prices may have further legs to go, and the strength of corporate profitability is likely to persist into the third quarter.
“Investors are expecting good results from these companies’ interim reports,” said Wang Zheng, chief investment officer at Shanghai Jingxi Investment Management in Shanghai.
“There will be more buying interest until they are done with the release of first-half reports. Such a good momentum on earnings will carry on at least into the third quarter.”
