Onshore Chinese companies expected to maintain profit growth momentum after turnaround in third quarter

China’s onshore listed companies are expected to maintain their profit momentum after posting the first such growth in a year in the third quarter, helped by a pick up in the services industry and falling raw-material costs for manufacturers.

Profits for companies on the Shanghai and Shenzhen exchanges increased by an average of 0.1 per cent from a year earlier, according to China Merchants Securities. Profit growth will probably accelerate to 2.7 per cent in the fourth quarter because of a lower base last year, the brokerage said.

While the latest earnings season, which ended on October 31, offered a glimpse of a turnaround in corporate earnings, the third-quarter results largely trailed analysts’ estimates. The Shanghai-listed companies were expected to show an 8 per cent profit increase and 14 per cent for those in Shenzhen, according to Bloomberg data.

“While it’s clear that corporate earnings may have already hit bottom, there’s a weakening correlation between earnings performances and stock prices,” said Wang Xinyue, an analyst at China Galaxy Securities. “It’s difficult for corporate earnings to be reflected in stock prices, given worsening investors’ sentiment and more attention on the macro-factor and the policy front.”

The weak profit growth may barely help to stem a stock rout as investors remain focused on how President Xi Jinping’s tightened grip on power after last month’s Communist Party congress will impact the economy and the path of interest-rate increases by the Federal Reserve. The CSI 300 Index of the nation’s biggest stocks slumped 7.8 per cent in October, adding to a 26 per cent decline this year.