Wave of profit warnings leaves Chinese stocks seeking buyers

Hong Kong

CHINA'S earnings season has barely started, yet it's already such a shocker that authorities have come up with fresh policies to boost the country's downbeat equity market.

Hundreds of profit warnings greeted investors before the official full-year reporting period kicks off. The sheer number of (previously profitable) firms saying that they'll post significant losses for 2018 triggered a wave of panic in Shenzhen's equity market - home to most of China's start-ups and private companies - and dragged stocks in the city to a four-week low. They bounced back on Friday amid speculation that the central bank will cut rates.

While a bad year was expected, traders were surprised that so many companies opted to take huge impairment charges in the fourth quarter following more stringent accounting rules issued in November. The logic: because many CEOs were already wrestling with a painful 2018 due to slowing demand and intensifying competition, they might as well take the hit in one go and start afresh, rather than absorb the losses over a number of years.

These are interesting times for Yi Huiman, who's had a productive first week as head of the market watchdog. The China Securities Regulatory Commission unveiled a package of rule changes that will allow for greater risk-taking in the equity market. The aim is to attract capital - both domestic and foreign - to support stocks after regulators called on banks, brokerages and insurers to do their bit to help struggling companies last year. The financial sector is already too stretched, analysts said.

Next week is the Chinese New Year break. Mainland equity, bond and currency markets will reopen on Feb 11. BLOOMBERG