Chinese corporate earnings have shown resilience under the severe lockdown, but traders are targeting pockets of disappointment and selling off stocks.
Many market heavyweights saw stocks crash after a good earnings show as investors chose to focus on segment misses or simply used the event as an opportunity to make a profit. One notable example is battery giant Contemporary Amperex Technology Co., whose shares fell nearly 6% last week, even as earnings beat expectations by 82%.
Bloomberg Intelligence calculated that more than half of the 715 MSCI China index members reporting second-quarter results delivered a stunning 9.4% rise in gross earnings per share. That may have encouraged traders to prepare for the worst from a quarter in which the economy barely grew, but China’s indicators have fallen more than 3% over the past month, nearly 1% of Asian benchmarks. We are catching up with the % increase.
It highlights widespread investor pessimism as worries ranging from the property crisis to power shortages to the persistent coronavirus outbreak cloud the outlook for Chinese stocks. Even policy rate cuts and fiscal stimulus failed to boost sentiment.
“These are certainly tough times, with earnings season ending next week and some companies waiting until the last minute to spill bad news, so it’s easy to find all sorts of excuses to make a profit. We can do that,” said Executive Director Wang Mingli. At Shanghai Youpu Investment Co., “For some people, there seems to be no good reason to buy.”
The 12-month futures earnings forecast for the MSCI China Index is set to decline for the third consecutive quarter. The stock has fallen 1.3% since the end of June and is down 9% in the past three months, according to data compiled by Bloomberg.
market reaction
Shares of CATL, China’s third-largest stock by market value, capped its biggest weekly drop since early July as investors were disappointed by year-on-year declines in battery margins.
Gaming giant NetEase fell more than 6% in Hong Kong on August 19, despite what analysts at Citigroup called the results a “solid beat.” – Profit increased by 73% than expected.
Similarly, electric vehicle makers Li Auto Inc. and XPeng Inc. fell despite stronger-than-expected earnings growth as traders stuck to conservative delivery guidance for the third quarter.
Thanks to this reaction, there isn’t much stock divergence between winners and losers. Shares of companies that beat consensus outperformed the MSCI China index by an average of just one percentage point on the first trading day after the results, according to Bloomberg Intelligence. That’s against his 1.5 points in the first quarter.
“Wide Area Mistake”
MSCI China earnings have been strong so far, boosted by technology weighting, but number of onshore listed companies missing consensus hits highest since 2018, according to Morgan Stanley report It is expected that
Strategists, including Fran Cheng, wrote in a report last week that almost 28% of so-called A-share companies that have reported earnings so far have fallen short of consensus, adding that “there is still room for downward revisions to consensus earnings.” added.
This “widespread error” underscores the weakness of macros, they write.
The decline in stock prices is also more pronounced for onshore companies. The benchmark’s CSI 300 index is down 1.5% so far in August, making him the worst performer among Asian national benchmarks.
All of this is against the backdrop of a deteriorating outlook for China’s economy. Economists surveyed by Bloomberg expect him to grow 3.7% this year, well below his official target of 5.5% and down from his 4% at the end of July.
Zhao Yuanyuan, fund manager at Shenzhen Qianhai Jianhongji Asset Management, said the weak share price “may be due to the limited impact of previous stimulus measures.” Continued improvement in profitability by the third quarter. “
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