Profits for Chinese firms fall in second quarter; trend seen reversing in fourth
Mainland-listed companies reported a collective decline in profit for the second quarter, due in part to a weak domestic economy
The lacklustre earnings season, which concluded last month, dealt another blow to investor confidence, which was already low because of a raft of disappointing economic data and a dearth of major stimulus measures. The latest macroeconomic reports showed China’s deflationary trend has persisted, the manufacturing industry shrank and the services sector has slowed. China’s benchmark CSI 300 Index has erased any gains made due to government buying earlier this year, and it closed at its lowest point since January 30, 2019, on Thursday.
“The double declines in revenue and profit reflected the pain of China’s economic transition,” said Zhu Bin, an analyst at Huafu Securities. “Stock valuations have been squeezed over the past two years. Those sectors whose fundamentals will improve going forward will draw the attention from investors.”
The best performers sectors in the second quarter were carmakers and electronics manufacturers, which benefited from the rise of electric vehicles and a recovery in the global semiconductor industry, according to the brokerage. While food and drink companies and appliance makers recorded greater profits, their growth moderated, reflecting weak consumer demand that could linger into the third quarter, the brokerage said.
Property developers and makers of building materials were among the worst performers, a reflection of the ongoing misery in the housing market, despite the introduction of a rescue package that included cutting mortgage rates and the down-payment ratio, Huafu said. Steelmakers and coal producers, which are closely tied to the strength of the economy, also reported declining profits.
