Chinese stocks’ US$1.8 trillion recovery from April low faces another earnings test as UBS, Citic predict setbacks
- The 800 biggest companies on the Shanghai and Shenzhen exchanges could suffer a 23 per cent drop in second-quarter profit, according to Citic Securities
- Expect market to consolidate in the next two months on mild economic recovery and earnings downgrades, UBS strategist says
Second-quarter results due over the coming weeks, might pose a headwind to yuan-denominated stocks in the CSI 300 Index, which has rebounded 17 per cent from a low in April. Measures taken by Beijing to spur growth are expected to take time to translate into stronger income statements and balance sheets, analysts said.
UBS Group forecast slower growth for companies on the CSI 300, saying earnings are likely to trail projections. A broader base of 800 top companies in Shanghai and Shenzhen might suffer a 23 per cent drop in second-quarter earnings, according to Citic Securities, China’s biggest publicly traded brokerage.
“We expect the market to consolidate in the next two months on a mild economic recovery and earnings downgrades,” said Meng Lei, a strategist at the Swiss bank in Shanghai. “In our base case, we expect a more material valuation re-rating from the late third quarter. Any market pullback would provide an attractive [buying] opportunity.”
13:54
HKEX CEO Nicolas Aguzin on the future of Hong Kong’s capital market
The caution suggests the massive recovery in market value over the past two months – aided by the lifting of the Shanghai lockdown and increased macro-policy support – may have run ahead of fundamentals and valuations.