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Translated by Andrew Vanburen from a Chinese-language piece in Beijing News
THE RECENT SELLOFFS in China's capital markets are in large part reflective of the relatively poor financial performances of firms listed in Shanghai and Shenzhen.
In fact, "hope springs eternal" is fast becoming the "winter of discontent" for more than half of China-listed A-share firms, as this ratio is expected to see first quarter losses.
How can investors best negotiate the topsy-turvy PRC share markets?
First of all, let’s take a look at some of the downside pressures on January-March performances.
The main culprit is the relatively sluggish economic growth in the country.
The world’s second biggest economy saw its first quarter gross domestic product (GDP) expand at 8.1% year-on-year, far faster than most other countries but still below the 8.3% expected by most analysts, and representing China’s slowest three-month period since the Wall Street crash of 2008.
The January-March expansion fell from the 8.9% GDP growth rate recorded the quarter earlier.
Despite the market bouncing back on the news due to hopes of perhaps easier credit terms from the People’s Bank of China, the slower-than-expected economic growth along with the wave of anticipated quarterly losses and declines have been a drag on investor sentiment of late.
However, the good news is that the most recent quarter’s GDP performance is expected to be a near-term low and healthier figures are expected going forward.
But it must also be remembered that this consensus is also held by similar groupings of market watchers who believed the first quarter GDP would come in higher than it eventually did.
As of April 15, some 834 A-share listed enterprises in Mainland China had already issued their forecasts for first quarter financial performance.
Among these, 54% or 454 listed firms warned of losses or deteriorating results for the three-month period.
An illustrative and well-recognized example is that of computer and office appliance maker Founder Technology Group Corp (SHA: 600601).
After announcing that its profit dropped 70% year-on-year in the first quarter, many of its shareholders took flight, leaving its Shanghai-listed shares 3.1% cheaper on Tuesday.
Intense competition from established global brands and domestic powerhouse Lenovo Group (HK: 992), as well as the sluggish economies at home and abroad, were the chief culprits.
Another laggard is tap water provider and real estate play Guangdong Golden Dragon Development (SZA: 000712) which boldly reported its first quarter net profit plunged over 72% year-on-year.
But not all is gloom and doom.
Among those brave firms already releasing their official first quarter results, 22 firms or just over half of the total of 41 so far reported a year-on-year rise in their bottom lines.
But that still leaves nearly 800 more to report their January-March performances, and in this business, the later the news the worse it is ... in many cases.
Therefore, investors would be well-advised to keep a close eye on just how close earnings forecasts mesh with reality for the first quarter.
See also:
NEW KID ON BLOCK: 21 A-Shares In Red; 4 In Hot Water
History Professor: 'PRC Headed For Hard Landing’
KINGS OF THE HILL: 12 Banks Produce Over Half Of All Listcos’ Profit
What’s Really Behind China Share Rally?
