Chinese stocks’ darkest days may be over as earnings rebound, property recovery seen lifting gloom in 2024, UBS says
- UBS forecasts that an uptick in profits for industrial companies is a forerunner of earnings growth for Chinese domestic listed companies
- Policymakers could bail out cash-strapped developers, and homebuyers could respond positively to lower mortgage rates, the Swiss bank says
The worst may be over for Chinese stocks after three straight years of losses dealt a US$1.4 trillion wipeout, as a recovery in corporate earnings takes hold amid a ramp-up in policy support in the world’s second largest economy, according to Swiss bank UBS Group.
An uptick in profits for industrial companies, which largely move in tandem with earnings for Chinese domestic listed companies, is probably a signal that the gloom is lifting, Meng Lei, a UBS strategist, said at the banks annual Greater China conference in Shanghai on Monday. Policymakers could bail out cash-strapped developers, and homebuyers could respond positively to mortgage rate cuts, he said, adding there is room for cuts in interest rates and the reserve requirement ratio this year.
Profits for industrial companies surged 29.5 per cent from a year earlier in November, posting growth for a fourth consecutive month after reversing declines in August, data from the statistics bureau showed.
“We believe company earnings growth [in 2024] and government support through monetary, lending and fiscal policies will restore investor confidence,” said Meng. “A turnaround is expected to occur after companies post a jump in their profit in the first-quarter earnings reports.”
The call emerges despite Chinese stocks recording their worst opening week of trading in 21 years. The CSI 300 Index, which tracks the biggest stocks on the Shanghai and Shenzhen exchanges, tumbled 3 per cent last week. It was the most subdued start to the year since 2003, when the year opened with a 4.2 per cent weekly loss. Last week, foreign investors sold a combined 5.52 billion yuan (US$771.3 million) of Chinese onshore stocks via the exchange link programme with Hong Kong, according to Bloomberg data. The CSI 300 dropped 11 per cent for a record third annual decline in 2023, following losses of 22 per cent and 5.2 per cent in 2022 and 2021, respectively.
Denting sentiment was a lack of conviction about the sustainability of China’s post-Covid-19 recovery. The manufacturing industry contracted for a third month in December, and declines in home sales intensified, even though the services sector remained in the expansionary zone for 12 straight months.