Sinking profits turn China’s $3.5 trillion rout into trap
Chinese stocks are experiencing a significant selloff resulting in a loss of $3.5 trillion since May. Increased competition and declining demand have negatively impacted corporate profits across various industries. Many companies, including major technology firms, are under financial pressure, prompting them to seek additional funding. The third-quarter earnings reports have shown disappointing…
A $3.5 trillion decline in Chinese stock market value has plunged the nation into a profit crisis. Over the past several weeks, no signs of recovery have emerged in a deepening sell-off as investors grapple with an ailing economy that's eroding earnings for corporations but hasn't prompted a robust response from authorities. As of now, the world's second-largest equities market is worth significantly less than its peak value reached in May.
The bearish trend has intensified this past week, pushing the broader CSI 300 Index into bear market territory and the Hong Kong tech sector index towards erasing all gains since Beijing launched a comprehensive growth support package two years ago. The main cause of investor pessimism is the realization that a persistent consumption slump and the scramble to cut costs are taking a heavier toll on profits across various industries, from banking to electric vehicle manufacturing and artificial intelligence.
Ulrich Urbahn, head of multi-asset strategy and research at Berenberg, warned that it is too early to declare the worst is over. The main concern remains profitability, as China's manufacturing and export strengths have not translated into stronger domestic demand, pricing power, and corporate earnings. Recent third-quarter earnings forecasts for MSCI China Index constituents have dropped by more than 4% since the end of March.
A series of disappointing earnings reports have further dampened sentiment. Battery giant Contemporary Amperex Technology (CATL), for instance, missed profit expectations, pointing to weak demand and fierce competition. The Hang Seng Tech Index, dominated by Chinese internet firms grappling with e-commerce price wars, has seen profit projections decline by more than 13%.
Despite lower expectations, the MSCI China constituents that have released results have missed forecasts by an average of 9%, marking the second-worst quarterly miss in two years. Companies such as AI infrastructure builder China Mobile reported an 8% year-on-year decrease in net profit due to cost pressures, while major materials firm Ganfeng Lithium Group also failed to meet estimates due to falling prices.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
