Chinese companies’ earnings set to rise amid a pickup in the economy after first decline in 3 quarters, UBS says

Over 5,000 companies listed on the mainland’s three exchanges posted an average 4 per cent decline in first-quarter earnings from a year earlier

‘Earnings are set to pick up as property activity stabilises and inflation recovery fuels household income and consumer spending growth,’ UBS strategist Meng Lei says

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The Bund Bull in Shanghai. Improved corporate earnings are crucial to the upwards momentum in Chinese stocks which have rallied since February. Photo: Bloomberg

Published: 2:53pm, 8 May 2024

The outlook for Chinese companies’ profitability looks bright, according to UBS which predicted that earnings will rise as the economy stabilises.

Corporate profits fell in the first three months of the year after two back to back quarters of growth as a lingering property market downturn and weak domestic demand weighed on earnings.

More than 5,000 companies on the mainland’s three exchanges posted an average 4 per cent decline in earnings year-on-year, according to the Swiss bank. Excluding the financial sector, the drop widened to 5 per cent because of its large market weighting, it said. That compared with a 1 per cent increase in the fourth quarter and a 0.5 per cent rise in the preceding three-month period.

“From a macro perspective, recent property sales and new starts have yet to hit bottom, while overall earnings remained pressured amid subdued demand in the first quarter,” said Meng Lei, a strategist at UBS in Shanghai. “Looking ahead, earnings are set to pick up as property activity stabilises and inflation recovery fuels household income and consumer spending growth.”

Tencent and Alibaba will announce their quarterly earnings next week. Photo: Bloomberg

Improved corporate earnings are crucial to the upwards momentum in Chinese stocks. The benchmark CSI 300 Index has risen 14 per cent from a February low after a slew of state measures such as direct stock purchases and restrictions on short selling. Overseas investors snapped up yuan-traded stocks for a third consecutive month in March largely because of improving sentiment and recalibration of portfolios by global money managers.

Mainland-listed companies are required to release annual and first-quarter results before the end of April, with the next earnings season commencing in July.