China Inc to outperform S&P 500 in third-quarter profit growth, stem US$3.8 trillion market rout

Name: Explainer: What is the Chinese Communist Party’s 20th national congress?
Uploaded: 2022-10-12T23:30:08.000Z
Duration: 5 min 51 s
Description: Explainer: What is the Chinese Communist Party’s 20th national congress?

Shanghai-listed companies are likely to post 8 per cent profit growth in the third quarter and 14 per cent for those in Shenzhen

Companies on the S&P 500 index are likely to see weakest profit growth in two years at 2.4 per cent in the June to September period

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People walk in front of a screen showing stock exchange data in Shanghai. Chinese onshore listed companies are set to report third-quarter results this month. Photo: EPA-EFE

Zhang Shidongin Shanghai

Published: 7:30am, 13 Oct 2022

Chinese onshore listed companies are likely to post the first quarterly profit growth in a year for the three-month period ended September, which should provide a respite to the sell-offs that have wiped out US$3.8 trillion in market capitalisation this year.

Third-quarter net income for the 1,957 companies on the Shanghai Stock Exchange probably increased 8 per cent from a year earlier, while profits for the 2,737 firms on the Shenzhen Stock Exchange may have risen 14 per cent in the span, according to Bloomberg data. If that materialises, it would reverse four quarters of declining earnings.

The projections would see them outperforming the S&P 500 companies. Profit growth for the US companies probably slowed to 2.4 per cent in the third quarter, the weakest pace in two years, because of rising labour costs, a supply chain snarl and a stronger US dollar that hurt companies with international revenue exposure, according to US financial data provider FactSet Research Systems.

Corporate earnings will be in focus as mainland-listed companies are soon due to report their quarterly results, and must do so by the end of the month. Profit growth may restore some confidence among traders, who have been burned by multiple headwinds from flare-ups in Covid-19 cases to escalating geopolitical tensions to the woes in the property market this year. The Shanghai Composite Index has slumped 17 per cent so far in 2022, losing 11 per cent alone in the third quarter. Meanwhile the Shenzhen Composite Index has slid 24 per cent year to date.

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Explainer: What is the Chinese Communist Party’s 20th national congress?

“Investors don’t have high expectations for third-quarter reports,” said Zhang Xinyuan, an analyst at Huatai Securities in Shanghai. “If an inflection point of corporate earnings can be confirmed, it’ll bring big positive expectations to the market.”

Some bright spots in the third-quarter earnings may come from finance and consumer companies that benefit from the government push to stabilise growth, as well as green-energy plays that thrive on the policy tailwinds, according to Huatai Securities and Caitong Securities.

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