By Jeanny Yu<\/p>\n
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Pessimism has gripped Chinese stocks, with no end in sight for a deepening selloff as investors confront the realities of an economy that\u2019s weak enough to erode corporate profits but not to trigger forceful new stimulus.<\/p>\n
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The world\u2019s second-largest equities market has lost $3.5 trillion in value from a peak in May, data compiled by Bloomberg show. The rout intensified last week, pushing the onshore benchmark CSI 300 Index into a bear market and a technology sector gauge in Hong Kong toward erasing all its gains since Beijing\u2019s sweeping growth support package two years ago.<\/p>\n
\u00a0At the heart of investor gloom is an unsettling realization that a protracted consumption slump and the race-to-the-bottom mentality among businesses is taking a heavier toll on earnings across industries from banks to electric car makers and AI model developers. Further darkening the outlook is the growing perception that Chinese leaders are in no rush to jump-start an economy that is slowing but at a tolerable speed.\u00a0\u00a0\u00a0<\/p>\n
\u201cIt is too early to conclude that the worst is over,\u201d said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. \u201cThe biggest concern remains profitability: China\u2019s strength in production and exports is not translating consistently into stronger domestic demand, pricing power and corporate earnings.\u201d<\/p>\n
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The third-quarter reporting season got off a disappointing start, with battery giant Contemporary Amperex Technology Co. Ltd., or CATL, suffering a profit miss that was symptomatic of both weak demand and fierce competition.\u00a0\u00a0<\/p>\n
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The consensus 2026 earnings forecasts for the MSCI China Index members has declined by over 4% since the end of March, according to data compiled by Bloomberg. The Hang Seng Tech Index, dominated by Chinese Internet firms mired in e-commerce price wars, has seen profit projections plunge more than 13% during the period.<\/p>\n
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Yet even against the lowered expectations, the MSCI China\u2019s constituents that have released results have missed consensus forecasts by an average of 9%, set for the second worst quarterly miss in two years, according to Bloomberg calculations.<\/p>\n
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Among them, AI infrastructure builder China Mobile Ltd.\u2019s January-September net profit tumbled 8% on year amid cost pressures, while major materials firm Ganfeng Lithium Group Co. also missed estimates on falling prices.\u00a0<\/p>\n
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\u201cCATL is the best poster child of what\u2019s going on: great innovative company that\u2019s doing great things but a victim of cut-throat competition and margin squeeze,\u201d said Jason Lemire, chief investment officer at Bold Wealth Partners. \u201cCompetition is encouraged and generally brutal in China, not shareholder friendly.\u201d\u00a0<\/p>\n
Profit Squeeze<\/p>\n
The earnings pressure has left companies, particularly China\u2019s Internet behemoths that are in a tense race to fund costly AI infrastructure build-outs, increasingly out of cash. That has forced some of them to tap the equities market to raise funds, such as Alibaba Group Holding Ltd.\u2019s $10 billion follow-on stock sale, which further diluted share value.\u00a0<\/p>\n
\u00a0\u201cI\u2019d always weigh Japan, Korea and Taiwanese firms over China because they have better earnings,\u201d said Stanley Tang, senior portfolio manager at Sumitomo Mitsui DS Asset Management. \u201cIf you ask me what China can do, hard to think of any – even further localization of tech may not help to boost share prices.\u201d\u00a0\u00a0\u00a0<\/p>\n
Weakening investor confidence is also showing up via other measures. Turnover in China\u2019s onshore stock market is hovering near the lowest level since July last year, while the outstanding amount of margin trades \u2014 bets funded by borrowed cash \u2014 fell to the least in a year.<\/p>\n
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To be sure, the slumping market has already prompted authorities to mobilize state funds known as the national team to prevent stock prices from spiraling out of control.\u00a0<\/p>\n
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Meanwhile, the recent rout has boosted the appeal of Chinese equities to some investors. Bridgewater Associates\u2019 China arm, for one, said it has turned \u201cprudently optimistic\u201d on local stocks, saying the declines in the third quarter were largely driven by liquidity while valuations aren\u2019t high. It also argued that policy favors long-term capital formation and more money may flow into equities given low bond yields.\u00a0<\/p>\n
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Still, skepticism abounds that while the national team\u2019s rescue efforts may be a temporary fix, the market\u2019s long-term prospect remains dim given policymakers\u2019 reluctance to adopt big-bang stimulus measures to accelerate economic growth.\u00a0<\/p>\n
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China\u2019s third-quarter gross domestic product grew 4.5% from a year ago, nudging expansion in the first nine months back into the government\u2019s annual goal of 4.5%-5%. That target-meeting performance has given authorities more reason to stick to a drip-feed style of growth support, without compromising fiscal discipline or further reducing historically low borrowing costs.<\/p>\n
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\u201cPolicymakers are comfortable with the nature of economic growth,\u201d said William Bratton, head of cash equity research for Asia Pacific at BNP Paribas. \u201cAs a result, either because they\u2019re consciously keeping it in reserve or because philosophically they don\u2019t believe in it, there\u2019s no urgency to use fiscal measures to promote large scale consumption.\u201d\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"By Jeanny Yu \u00a0 Pessimism has gripped Chinese stocks, with no end in sight for a deepening selloff…\n","protected":false},"author":2,"featured_media":656438,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[295321,114,61875,44697,18552,17462,14984,160939,39497,184,44858,85,46,26712],"class_list":["post-656437","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-beijing-stimulus","tag-business","tag-catl","tag-china-stock-market","tag-chinese-economy","tag-chinese-stocks","tag-consumer-demand","tag-corporate-earnings","tag-csi-300","tag-economy","tag-hang-seng-tech-index","tag-il","tag-israel","tag-price-wars"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/656437","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=656437"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/656437\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/656438"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=656437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=656437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=656437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}