Chinese companies return to profit growth in third quarter as stabilising measures feed into economy

Chinese onshore companies’ profits rose by an average 0.5 per cent year on year in the third quarter versus a 9.4 per cent decline in the previous three months

Earnings growth will continue to accelerate in the fourth quarter as China’s economy shows improved resilience, brokerages say

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Rising consumer demand in China fuelled a growth in the profits of Chinese companies in the third quarter. Photo: Bloomberg

Published: 2:30pm, 1 Nov 2023

Chinese listed companies returned to profit growth in the third quarter, as Beijing’s economic stabilising measures fuelled an earnings recovery.

The profits of the 5,200-plus companies on the Shanghai and Shenzhen exchanges rose by an average 0.5 per cent year on year in the July to September period, according to Haitong Securities. That compares with a 9.4 per cent slump in the previous three-month period and 1.3 per cent growth in the first quarter. The third quarter earnings season ended on Tuesday.

The improvement in corporate earnings will provide some respite to China’s US$9.4 trillion onshore stock market, which has been enduring a record sell-off by foreign investors fretting over the sustainability of the economic recovery. The earnings recovery may help in lifting the valuation of Chinese stocks – the CSI 300 Index currently trades at 13 times earnings, below the 10-year average of around 15 times.

“Earnings growth for A-share companies is expected to stabilise and pick up in the second half, with the economy undergoing a stable recovery,” said Xun Yugen, an analyst at Haitong Securities. The Shanghai-based brokerage expects full-year earnings growth of up to 5 per cent.

Big companies on the two exchanges’ main boards delivered better earnings than small-caps in the third quarter. Main-board companies reported a 0.2 per cent profit growth, outpacing a 3.8 per cent drop for start-ups on ChiNext and a 36 per cent slump for stocks on the tech-heavy Star Market, according to Caitong Securities.

Consumer companies recorded the most noticeable recovery in the sector, buoyed by accelerating retail sales growth during the summer holiday, the release of pent-up travel demand and robust electric-vehicle sales, the brokerage said. Profits at carmakers, retailers and food and drink producers grew by at least 16 per cent last quarter.