Chinese Stocks Face Pressure From Weakened Earnings Forecast
Corporate earnings from companies across industries like retail, real estate, and green energy are facing weak demand, which is ultimately putting pressure on Chinese stocks. The brokerage, Shenwan Hongyuan Group, pointed out that profit growth of mainland China-listed companies from January to September slowed compared to their performance in the first six months of the year.
According to the National Bureau of Statistics, China’s industrial company profits reported a 15.7% increase from the Jan to August period compared to last year. Despite this growth, there was a deceleration from the 18.7% growth recorded in H1 of this year. Listed companies are due to publish their quarterly reports by the end of October and are likely to record lower profit growth than in interim quarters.
Analysts are expecting a drop in numbers despite companies reporting a 19.5% year-on-year profit growth in this year’s first half. This is the fastest profit growth pace for mainland Chinese companies since 2022.
Lesser-than-expected earnings will be another stressor on Chinese stocks, particularly after the benchmark CSI 300 Index slid last week owing to the underwhelming stimulus package unveiled by the government and the fallout from the AI trade with the US. State-backed funds could have bought into the most valuable ETFs tied to important indexes, but renewed investor confidence stopped the situation from escalating to that level.
It was the Central Huijin Investment and other state-backed funds which intervened in the market to nip these losses in the bud. Among them, the CSI 300 ETF recorded 19.5 billion yuan in turnover, its busiest trading day since 2024. Despite sliding 20% from its peak since June, the benchmark managed to enter the bear market.
Property, consumer and household goods and the clean energy sector are responsible for crunched quarterly earnings. The agricultural sector also took a hit with pig-farming losses. Big companies like CATL posting lower results have already sent alarm bells ringing. The world’s leading lithium-ion battery maker’s shares fell 14% after the decrease in Q3 profit growth was more than half compared to the previous quarter.
On the other hand, the tech sector has shown positive performance, as expected. Strong demand for compute power and imported products being replaced by domestically manufactured counterparts have helped Chinese tech stocks continue their good performance in the third quarter as well. Producers of optical transceivers, semiconductor equipment, etc are benefiting greatly from the global AI boom, and Chinese companies are no exception. Energy and commodity producers are also set to profit from rising prices this quarter.
The Star Market 50 index climbed 3%. This index manages some of China’s biggest chipmakers. The ChiNext 50 index gained 4.3% after investors were reassured of normal operations. Annual report figures may also be influenced by foreign capital inflows and a widened ETF product range.
There was a recent global selloff of tech stocks, which caused consumer companies to look into hedging. However, investment banks like BNP Paribas are assured that this trend might not last long, especially amid the earnings outlook. BNP projected that the earnings outlook for the 2026 has been propelled by a 5% rise in Q3 for technology, industrial and materials companies. Consumer companies, however, are looking at a 2% tumble. In 2027, only technology companies have been forecast to record higher earnings.
Analysts believe production sectors rather than consumption companies will perform better next year, and have explained that it is too early to assume that consumption will rise considerably in 2027, especially considering the macro trends and earnings momentum.
