Goldman says robust China earnings will re-energise its stocks

A ROBUST earnings season should help Chinese stocks regain the momentum lost after the initial wave of optimism about the country’s reopening from Covid isolation, according to Goldman Sachs Group.

Of all the Chinese companies reporting first-quarter results, 90 per cent have given positive profit guidance so far, up from the historical average of about 60 per cent to 70 per cent, Sunil Koul, the bank’s Asia Pacific equity strategist, said on Bloomberg TV on Wednesday (Apr 26). Most of the companies may deliver 20 per cent earnings growth, he added.

The majority of industry leaders that have already released earnings, including battery maker Contemporary Amperex Technology, liquor giant Kweichow Moutai, China Mobile, and Wanhua Chemical Group, have reported stronger-than-expected results.

The encouraging earnings picture is offering investors hope after geopolitical tensions triggered a US$446 billion meltdown in domestically traded Chinese stocks this month, pushing the MSCI China Index towards its worst April since 2004. The broader pressure on the country’s equities also comes as US-based active long-only fund managers have been driving selling in America-listed Chinese stocks and Asia funds are re-embracing a once-popular India-over-China trade.

The latest data “is supportive of the fact that you could see strong earnings rebound in China, which I think in the near term could lift markets higher,” Koul said. “This week and next week is most important for China because you will see the bulk of the companies reporting there.”

According to analyst estimates compiled by Bloomberg Intelligence as of Apr 19, aggregate profits per share for members of MSCI China are expected to rise 11 per cent on year in yuan terms in the January-March period, the first full quarter since the country’s reopening. This comes after a five-quarter slide, including an 11 per cent annual drop in the quarter ended Dec 31. BLOOMBERG