China’s Stock Surge Stumbles as Earnings Disappoint
A deteriorating earnings landscape is casting a shadow over the prospects for Chinese equities, prompting investors to be cautious that spending during the Lunar New Year holiday may fall short of sparking a rally. According to an analysis, corporate profit pre-announcements have indicated a “major deterioration” for the last quarter of 2025. The most recent economic indicators highlight a decline in consumer demand as certain government stimulus programs are being reduced, as reported. These factors are raising worries that the nine-day holiday will not provide its usual uplift to earnings, as ongoing economic uncertainty continues to diminish consumer spending. “Sentiment on Chinese stocks is going through a weak patch,” stated Vey-Sern Ling. That is “partly because investors are unwilling to take risks before the long holidays, and also because of a lack of new catalysts, seemingly heightened regulatory scrutiny recently, and continued intense competition.”
The MSCI China Index has experienced a modest increase of 0.8 per cent this year, in contrast to the MSCI All World Index, which has seen a gain of 2.8 per cent. The difference is more pronounced in Asia: South Korea’s key gauge has surged 31 percent, while Taiwan’s has increased by 16 percent. China’s earnings season is proving to be a letdown. According to Morgan Stanley, fourth-quarter pre-announcements from over 2,000 mainland-listed A-share companies reveal that negative alerts surpass positive ones by 14.8 per cent, compared to a net negative of 4.8 per cent in the second quarter. According to strategists Chloe Liu and Laura Wang, smaller firms experienced the most significant challenges, especially within the real estate and consumer-focused sectors, as noted in their recent commentary this month. Slowing economic growth serves as a significant impediment to profits. China’s growth slowed to 4.5 percent last quarter compared to a year earlier, marking the weakest pace since the country emerged from Covid lockdowns in late 2022. Producer prices decreased by 1.4 percent in January compared to the previous year, continuing a trend of deflation that started in late 2022, as purchasing managers’ indexes indicated an unforeseen slowdown.
“The significant miss in both manufacturing and non-manufacturing PMIs suggests insufficient underlying demand,” said Lu Ting this month. “Consumption is facing clear headwinds from the scaled-back trade-in stimulus program this year.” In the upcoming weeks, economic data might become less prominent as the statistics bureau usually merges January and February figures to mitigate distortions resulting from the irregular timing of the Lunar New Year holiday. Significant policy announcements are expected to be unlikely prior to the National People’s Congress in March. Heightened regulatory intervention is contributing to market caution. Last month, authorities implemented stricter margin financing rules to mitigate speculative trading and lessen the likelihood of future boom-and-bust cycles. Earnings are diverging sharply across industries, which complicates stock selection.
According to a report, metal miners are experiencing advantages due to rising prices, while companies involved in the artificial intelligence supply chain and those backed by government initiatives to control a price war are also gaining traction. Miner CMOC Group Ltd. announced last month that its preliminary net income surged approximately 50 percent for the full year, while software maker Iflytek Co. reported an increase ranging from 40 percent to 70 percent for the same timeframe. In contrast, shares of electric-vehicle makers BYD Co. and Great Wall Motor Co. both declined following disappointing January sales figures. According to China International Capital Corp., overall A-share earnings are projected to increase by approximately 6.5 percent year-on-year for 2025, in contrast to a decline of 3 percent for 2024. China Merchants Securities has also forecasted single-digit growth. Shen Meng stated that the profit increase is “largely attributable to policy support and cyclical factors, rather than signaling a fundamental or structural shift in market conditions.”
