China’s stock rebound faces earnings-season test amid ‘weak recovery’ as profits set to drop for fourth straight quarter

First-quarter net income for the companies on the CSI 300 Index of the biggest yuan-traded stocks probably dropped 13 per cent year on year

Investors ‘lack conviction’ and generally agree 2023 will be a ‘weak recovery year’, an analyst says

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An electronic board shows Shanghai and Shenzhen stock indexes at the Lujiazui financial district in Shanghai on March 24, 2023. Photo: Reuters

Published: 7:30am, 20 Apr 2023

Corporate earnings season will soon put to the test the resilience of a run-up on Chinese stocks, as analysts expect first-quarter results to disappoint during what investors see as the trough in a “weak recovery year”.

Results are due from 5,000-plus companies on mainland China’s exchanges by the end of April, and the headline numbers do not bode well for stocks.

First-quarter net income for the companies on the CSI 300 Index of the biggest yuan-traded stocks probably dropped 13 per cent year on year, marking the fourth consecutive quarterly decline, according to Bloomberg data. That forecast throws a spanner in the works for the gauge, which has gained almost 7 per cent this year.

Property developers, carmakers and port operators are expected to drag on earnings, with the consumer, leisure and new-energy sectors as bright spots, according to investment banks including UBS Group and Everbright Securities.

“Investors we spoke with generally lacked conviction, and the consensus among investors, particularly domestic onshore [investors], is that 2023 will be a weak recovery year,” said James Wang, head of China strategy at UBS, said in a report this month.

A mixed set of key first-quarter economic data released on Tuesday affirmed the argument that China’s post-pandemic economic recovery is mild, while the housing market’s woes linger as a threat to growth. The economy expanded 4.5 per cent in the first three months, but industrial production trailed estimates and property investment decelerated, the data showed.