The uptick in the Hang Seng Index is at risk of stalling after it climbed 11 per cent from a low in late January. While Chinese state intervention has tentatively put a floor under stocks, corporate earnings show little sign of providing any upwards momentum.
With all 82 members of the Hang Seng Index having released full-year profits for 2023, results trailed analysts’ consensus estimates by 3 per cent, according to Bloomberg data. The property, raw-materials and industrial sectors delivered the biggest disappointments.
“The market will be more focused on how listed companies can deliver on earnings expectations now,” said An Qingliang, an analyst at Guorong Securities.
“The policies from the NPC are below expectations. So the earnings performance is particularly important at a time when pressure is building up for some investors to pocket the profits from the decent gains the market has made.”
Hang Seng Index members posted a 5.2 per cent average profit growth last year, moderating from a 6.7 per cent increase in the first half, according to Bloomberg data. The city’s market will reopen on Tuesday after a two-day break.
Providing some relief, Chinese electric-vehicle maker Li Auto and Alibaba Health Information Technology exceeded estimates by the most.
Buying sentiment has already exhibited some signs of receding. The Hang Seng Index rose by a mere 0.2 per cent in March after a 6.6 per cent gain for the preceding month.
Earnings reports and key economic data from China are likely to determine how traders recalibrate their portfolios after the excitement of the state rescue efforts tapers off, leaving fundamentals in the driving seat.
The January-February data showed a persistence in producer price deflation and a continuing downturn in home sales.
“Investors may turn back to the inflation and property market outlook for this year, while watching how the company earnings recovery will play out,” said Meng Lei, a strategist at UBS Group in Shanghai. “The market may not get a new wave of momentum until more clear signs of earnings recovery emerge.”
An early glimpse of earnings for mainland-listed companies offers no solace either.
For the 149 companies on the CSI 300 Index that have already posted annual reports, the results fell short of analysts’ consensus estimates by 5.4 per cent, Bloomberg data showed. Property developers, utilities and healthcare companies registered the biggest earnings misses.
“Investors are now facing a test of the resilience of economic data and corporate earnings,” said Fang Yi, an analyst at Guotai Junan Securities in Shanghai.
“Given the current situation, there’s no fresh catalyst for revising market expectations upwards.
“As the market has already racked up a fairly big gain, the rebound meant to fix the excessive decline is coming close to an end now, and a consolidation pattern will ensue.”