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Chinese equity market on a bull run

Nearly half say earnings rose in 2020, economy resilient

2021/1/12 9:41:35   source:Global Times

Nearly half of the 750-plus A-share companies that have announced preliminary results for the past year said their earnings improved, with petrochemical, pharmaceutical, high-tech, food and beverage sectors among the best performers, a sign China's economy has displayed extraordinary resilience amid the COVID-19 pandemic.

With the economy continuing its rebound from the virus this year and providing a sustained boost to consumer confidence, the consumer discretionary sector will deliver stellar returns, analyst said, envisioning 2021 to be a much better year for company earnings.

As of Sunday night, 753 companies listed on Chinese mainland bourses had disclosed their preliminary results for 2020, with 369 (49 percent), posting earning gains, the China Securities Journal reported on Monday, citing financial information provider Wind.

Eight companies including distillers Wuliangye Yibin and Shanxi Xinghuacun Fen Wine Factory, as well as Wanhua Chemical Group, Shenzhen Mindray Bio-Medical Electronics, and Apple supplier Luxshare Precision said the upper end of their net profits' target range will exceed 3 billion yuan ($463.3 million).

Additionally, 287 companies (38.1 percent) estimated a 10 percent-plus increase in 2020 net profits, while 156 estimated earnings growth of more than 100 percent.

Six companies including Guangzhou Tinci Materials Technology, which specializes in chemical materials and lithium-ion battery materials, coronavirus testing kit manufacturer Da An Gene Co and HaiXin Foods projected more than 10-fold surge in earnings.

Enviable profitability is underpinning share prices despite overall market weakness.

Shenzhen-listed Jiangsu NanFang Bearing, a major domestic supplier of needle bearings, clutches and auto parts, saw its shares soar by the 10-percent daily limit on Monday after a filing on Sunday revealed a surge of eight to 10.37 times in 2020 net profits.

The benchmark Shanghai Composite Index fell 1.08 percent on Monday while the Shenzhen Component Index shed 1.33 percent. Out of the 4,000-plus stocks traded on the Chinese mainland market, fewer than 800 closed up.

An uptick in earnings in the pharmaceutical and petrochemical sectors is essentially linked to rising factory prices of industrial products and international commodity price spikes and post-COVID-19 inventory replenishment, said Wu Jinduo, head of fixed income at the research institute of Great Wall Securities. Wu cited an upward spiral in the CRB Commodity index since April 2020 and an uptrend in Brent Crude oil futures and industrial metals traded on the London Metal Exchange since May 2020.

As a major consumer of commodities, China's demand for industrial products has been spurred by an economic recovery since the second quarter of last year, Wu told the Global Times on Monday, adding that an increase in property and infrastructure investment to offset the virus' impact pushed up global commodity prices.

The global economy is on track for a higher run in 2021, buoyed by a low base and the post-coronavirus rebound, the analyst said.

Mandatory spending has been nearing pre-virus levels and it's the consumer discretionary sector's turn to deliver stellar returns as consumption's contribution to growth is estimated to gradually return to normal levels this year, Wu forecast.

An estimated rebound in manufacturing earnings this year would rev up manufacturing investment and consequently bode well for relevant listed companies, Wu added.

The majority of the listed companies expecting impressive earnings are in the industries benefiting from the economy's rebalancing, Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, said.

Recent sporadic COVID-19 outbreaks in some regions of China won't dent optimism over the economy's growth this year, Yang said, voicing confidence about the country's effective virus containment at large and broad-based earnings growth among listed companies in 2021.

Liu Mingdi, head of China equity strategy at UBS, predicted that the Chinese economy would grow 8.2 percent this year and the blue-chip CSI 300 index would record a rise of 13 percent, the Securities Times reported. The index has exceeded its 2015 high.

Aggressive local commitments to industries deemed indispensable for the economy's sustained competitiveness are supporting optimism in the market.

Local governments are drawing up road maps for the development of emerging industries during the first year of the 14th Five-Year Plan (2021-25), the Economic Information Daily reported on Monday.

More than 10 provinces including East China's Anhui and Shandong provinces, Central China's Hubei and Hunan provinces, and South China's Hainan Province have crystallized plans to develop local emerging sectors, with funds of more than 100 billion yuan channeled into strategic key fields including new energy, bio-pharmaceuticals and integrated circuits. 

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