(Bloomberg) — Some Wall Street banks are cutting profit estimates for Chinese companies, citing impact from the recent Covid flareup and subsequent lockdowns.
UBS Global Wealth Management trimmed its earnings growth forecast for firms this year to 11% from 13%, and expects downward revisions to continue in the second quarter, strategists including Eva Lee wrote in an April 22 note. They see earnings of Chinese companies stabilizing “around mid-year after more supportive policies are implemented.”
Morgan Stanley expects profit growth to reach 10% for MSCI China and 12% for the CSI 300 Index for 2022, which is 5 and 4 percentage points below consensus, respectively, according to an April 18 note. Goldman Sachs Group Inc. also expects earnings downgrades to come.
About a quarter of China’s more than 4,700 onshore-listed companies have published first-quarter results. Among the CSI 300 members that have reported, earnings are on aggregate below expectations, according to data compiled by Bloomberg. Investors headed for the exit after poor earnings and lower guidance, with stocks dropping by almost 2% on average after first-quarter results.
Shanghai Fosun Pharmaceutical Group Co. slumped as much as 10% in Hong Kong Wednesday after first-quarter net income fell 45% year-on-year. Solar panel component maker Sungrow Power Supply Co. plunged 28% over two days after earnings last week, with delayed deliveries in the first quarter due to “strict pandemic controls,” according to Jefferies Group LLC.
“First-quarter earning shocks may bring renewed pressure to the market,” Chen Guo, chief strategist at China Securities Co., wrote in a note this week. “We have cut our earnings forecasts for the second quarter” given the deteriorating economy, he added.
China’s Covid Zero policy has dealt a heavy blow to the economy, as stringent restrictions pressure supply chains and chill consumption. Brokerages including Morgan Stanley and Nomura Holdings Inc. have trimmed their economic growth forecasts. A weekslong lockdown that shut down much of Shanghai expanded to parts of Beijing this week, stoking fears of wider restrictions. The CSI 300 gauge plunged the most in more than two years on Monday, before recovering some ground Wednesday.
Read: China Is Running Out of Ways to Stem Self-Made Market Meltdown
Bellwether stocks and index heavyweights set to report this week include SAIC Motor Corp., LONGi Green Energy Technology Co. and Yihai Kerry Arawana Holdings Co. Past experience shows that companies with poor earnings tend to report later, meaning the A-share market could face greater volatility in the coming days.
Separately, analysts are also cutting their forecasts on the Chinese currency given its recent weakness. The yuan is expected to drop to 6.7 per dollar in three months, about 2% weaker than current levels, according to a Bloomberg survey of analysts and traders.
Read: Yuan Losses Have Room to Run as Covid Puts Economy Under Siege
(Updates market details in par 7, adds yuan in final paragraph.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
