July 18, 2024

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China Earnings Pain Erodes Optimism Over Stock Market Rebound

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(Bloomberg) — Investors in Chinese stocks are losing patience as a long-awaited earnings recovery fails to come through and a rally unravels.

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Earnings estimates on key Chinese gauges have been slashed by the most in Asia this year as a deepening housing slump and sluggish retail sales hurt confidence. Stocks have lost momentum following a mid-May peak, with the MSCI China Index down more than 8%.

“We’ve now seen 11 straight quarters of earnings misses for MSCI China and the analyst consensus hasn’t really gotten to grips with just how weak the underlying growth environment is in China,” Jonathan Garner, chief Asia equity strategist for Morgan Stanley, said Thursday. “You have to be selective to be involved in China. There’s also more competition going on, particularly in sectors like e-commerce.”

Optimism that corporate performance will improve has been central to a months-long bull run earlier this year, with global funds tip-toeing back into the world’s second-biggest stock market. The recent slide is bringing back grim memories of the past years, when rebounds were soon out-shadowed by selloffs as risks from geopolitical tensions to regulatory crackdowns resurfaced.

The Shanghai Composite Index and the CSI 300 Index have each seen their consensus earnings estimates drop by more than 6% this year, compared to an increase of 1.6% for MSCI’s Asia gauge and even higher raises for benchmarks in India and Japan, according to data compiled by Bloomberg.

Earnings results for the members of the MSCI China Index missed the aggregate estimate by about 3.5% in the first three months of the year, while those for onshore stocks displayed a similar trend, another set of data showed.

As the recovery falters, foreigners are back to selling. Overseas investors sold onshore stocks for nine straight days through Thursday, unloading the equivalent of more than $5 billion in the longest stretch of withdrawal since August 2023.

Investors are…

2024-06-21 20:00:00

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