Investors face value trap in chasing China’s stock rebound as first-quarter earnings season kicks off

The CSI 300 Index, representing the nation’s 300 biggest listed companies on the Shanghai and Shenzhen exchanges, is forecast to report a 13 per cent drop in corporate earnings for the first three months of this year, according to Bloomberg data. Excluding financial firms, the drop may be as steep as 32 per cent, according to GF Securities.

The benchmark has risen 2.7 per cent this month as companies begin to restore factory production and workers return to offices from unprecedented lockdowns. The gauge retreated 10 per cent last quarter, the most since the final quarter of 2018 amid a historic slump in economic activity.

“The market has not fully priced in the negative impact of the slide in earnings growth,” said Dai Kang, an analyst at Guangzhou-based GF Securities. “The positive thing for the market is that liquidity is generally adequate and the counter-cyclical policies will be rolled out at a faster pace.”

China requires all listed companies to publish their full-year and first-quarter report cards by April 30. The deadline can be extended by two months for companies affected by pandemic, the China Securities Regulatory Commission said on Tuesday.

Official data pointed to a record decline in economic growth during the January-February period as the coronavirus outbreak first detected in central Hubei province led to lockdowns, crippling manufacturing and consumer spending.

Analysts at Standard Chartered said the “concentrated shock” to China’s economy in the first quarter is likely to be larger than for any single quarter during the global financial crisis in 2007 to 2009. The bank trimmed its GDP growth forecast to 2.5 per cent for 2020, which would make it slowest since a 1.6 per cent contraction in 1976.