April 25, 2024

Hope for China Stocks as Analysts Halt Cutting Estimates

Beleaguered Chinese stocks may have dealt with their worst already, as there are expectations that earnings might finally be stabilizing. There has been a surge in optimism with analysts no longer cutting estimates for members of MSCI China. According to the numbers, the analysts had slashed these numbers by almost 10% since the beginning of March. However, the second half of the year might be a better one and profits for the benchmark are expected to increase, especially where companies like China International Capital Corp, and Goldman Sachs Group Inc. are concerned. Moreover, internet giants, such as Baidu Inc. and Alibaba Group Holding Ltd. also posted better-than-expected results.

This indicates that the investors may have been very pessimistic as far as the earnings outlook is concerned. Investor sentiment has shifted and are likely to continue due so because of the stabilizing profit predictions, which gave Chinese stocks the boost they needed for breaking through their losing streak in May. The stocks had been down since six months, but they saw a breakthrough that enabled them to actually outperform their peers globally. Foreign investors have once more turned towards the market, thanks to a number of policy measures implemented for stimulating economic growth and lifting of virus restrictions.

Therefore, it is not surprising that market strategists are opting for a bullish approach where Chinese stocks are concerned. Analysts said that lifting of COVID-19 lockdowns in China, the highly supportive policies of the government, low valuations and companies posting better-than-predicted results indicates a bullish trend in the market. The same optimism had existed in the beginning of the year, but Chinese equities have begun to look more and more solid. When 2022 started, the stocks had been going down and investors had thought they had reached a bottom, until they declined even further.

The year has recorded a 22% decline in MSCI China because an already-week economy suffered due to COVID lockdowns. It had reached a high in February last year and has declined by 45% since then. Most analysts have taken a more optimistic stance when it comes to Chinese shares, as lockdown measures have been lifted in Shanghai. Furthermore, Chinese government officials have also said that they would take steps for boosting economic growth after Li Keqiang called for avoid a contraction in the current quarter. Therefore, strategists believe that price recovery in China could happen gradually this time around.

But, things are still quite bleak as Chinese industrial companies saw their profits shrink in April because of COVID lockdowns and outbreaks disrupting sales, transport and factory production. This was a first to occur in the last two years. Those who are skeptical will be doubtful of any rebound that occurs and keeping an eye out on the number of COVID cases, as life returns to normal. Only macro data can provide evidence of recovery, such as trade, manufacturing and loans. Analysts also believe that there are some sectors that are still quite vulnerable and these include telecoms, technology and pharmaceuticals.

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