Why Chinese firms’ 18 per cent jump in second-quarter earnings will fail to lift investors’ spirits

Name: Shanghai doubles down on quarantine measures in Covid-19 fight
Uploaded: 2023-06-27T06:15:13.000Z
Duration: 2 min 30 s
Description: Shanghai doubles down on quarantine measures in Covid-19 fight

CSI 300 firms are likely to post an 18 per cent jump in earnings, but that figure may be distorted by the Shanghai lockdown last year when profits fell 1.2 per cent

Companies in the TMT, insurance and green energy sectors may provide some of the few earnings bright spots, according to China Merchants Securities

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An electronic ticker displays stock figures in in Shanghai. Chinese companies are set to release their second-quarter results in July and August. Photo: Bloomberg

Zhang Shidongin Shanghai

Published: 2:15pm, 27 Jun 2023

Stocks traders are likely to look past robust second-quarter earnings of mainland Chinese companies because of the low base from last year when Shanghai was placed under a two-month lockdown.

The companies on the CSI 300 Index will probably register an 18 per cent year-on-year profit increase for the three months to June, the fastest pace in years, according to Bloomberg data. Earnings fell 1.2 per cent in the same period in 2022, when China’s biggest metropolis was under lockdown in April and May to contain the spread of Covid-19.

“Second-quarter earnings may not tell us too much about the real story of the recovery in corporate earnings, as the number is an [anomaly] due to a very low base last year,” said Dai Ming, a fund manager at Huichen Asset Management. “Even if it’s an impressive number, that may not give too much of a boost to the market.”

The lack of conviction about the earnings strength may inflict another blow to investors desperate for catalysts to turn around sentiment in China’s 82 trillion yuan (US$11.3 trillion) onshore market. The CSI 300 gauge has been trading close to a three-week low after breaching a key moving average that is a barometer of market sentiment, with investors showing their disappointment with Beijing’s piecemeal stimulus measures.

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Shanghai doubles down on quarantine measures in Covid-19 fight

The CSI 300 index rose 10 per cent in the third quarter of 2020, when profit growth averaged 17 per cent.

More than 5,000 companies on mainland China’s three bourses are set to report interim results in July and August. Jiangsu Kanion Pharmaceutical will kick off the earnings season on July 13, when the Shanghai-listed drug maker releases its report card.