China’s listed stocks see ever-thinner profits as economic slump chips away at bottom line

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The profits of 5,000 companies on the mainland’s three exchanges dropped 3.7 per cent in the three months that ended in September, China Merchants Securities said

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Zhang Shidongin Shanghai

Published: 5:00pm, 1 Nov 2024Updated: 8:01pm, 1 Nov 2024

Chinese listed companies reported a faster rate of thinning profits in the third quarter, as the nation’s slowing economic growth sapped demand, stymied recovery and added headwinds to the stock rally that has recovered as much as US$3 trillion in market value over the past month.

The aggregate profit of the 5,000 companies trading on the mainland’s three equity exchanges dropped 3.7 per cent in the three months that ended on September 30 from a year earlier, China Merchants Securities said. That was a faster pace than the 1.5 per cent decrease in the second quarter and the 4 per cent decline in the first three months of the year, the broker said.

The disappointing results exacerbate the complications in China’s slowing economy, as authorities grapple with weakening consumer spending and the persistent downturn in home prices over the past few years. China’s third-quarter economic growth moderated to 4.6 per cent, the slowest pace in more than a year, raising the risk that the government’s 5 per cent annual target may be beyond reach. The deflationary cycle continued, with factory-gate prices falling for the 24th consecutive month in September.

“Insufficient domestic demand drove prices down and provided a drag on production,” said Zhang Xia, an analyst at China Merchants Securities. “A recovery in revenue was weak so the profitability was under pressure. While listed companies adopted cost-cutting measures, that did little to boost profitability.”

The earnings report card may throw cold water on those investors who are feverishly betting on China’s stock market rally since a deluge of stimulus policies was unleashed in late September. With gains of more than 20 per cent in key benchmarks over the past month or so, the valuations of yuan-denominated stocks have quickly approached historical averages and command no advantage over other emerging markets, according to global investment banks.

Industrial and consumer companies were the major drag on third-quarter earnings, while financial companies and property developers returned to profit growth, according to Haitong Securities.