Trade war dents Chinese company profits, portfolio inflows
Reuters
Published Sep 03, 2019 01:15AM ET
Updated Sep 04, 2019 01:16AM ET
Trade war dents Chinese company profits, portfolio inflows
By Luoyan Liu and John Ruwitch
SHANGHAI (Reuters) - Some Chinese business sectors reported solid first half earnings, though a substantial fall in industrial profits and in tepid overseas investment inflows into China's stock markets show fallout from the protracted trade war with the United States.
Foreign portfolio inflows into stocks in the world's second largest economy have slowed dramatically. Stocks exposed to overseas markets and a weaker yuan have seen sustained selling while companies in the consumer and technology sectors have seen share prices rise as Beijing boosts domestic consumption and seeks technological independence.
GRAPHIC: Foreign inflows decreased significantly amid trade tensions - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5101/5101/Foreign%20inflows%20decreased%20significantly%20amid%20trade%20tensions.png
Inflows in January-August via the Stock Connect scheme with Hong Kong were about 120 billion yuan ($16.92 billion). That topped the year-earlier number, but was a fraction of the 600 billion yuan of 2019 inflows the China Securities Regulatory Commission (CSRC) expressed hope for at beginning of the year.
Global index provider MSCI is quadrupling the weighting of Chinese mainland shares in its global benchmarks this year, while FTSE Russell began adding China A-shares to its main emerging markets index in June.
But industrial profits have slowed since 2018's second half as economic growth slipped to a near 30-year low.
GRAPHIC: China's industrial profits under pressure as economy cools - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5397/5397/China's%20industrial%20profits%20under%20pressure%20as%20economy%20cools.png
Shares in machinery, electronics and home appliances firms, seen as vulnerable to trade tensions given their reliance on overseas markets, have been under selling pressure.
BOE Technology (SZ:000725) is an example. The OLED display panel maker, which saw first-half profits plunge 44%, said it faced extremely severe challenges due to trade frictions and an industry downturn.
As the trade war pushed the yuan to an 11-year low, it hurt companies sensitive to currency moves, including real estate firms and airlines. The CSI300 real estate index dropped 7.1% in August as a weakening yuan made the property market less desirable for foreign investors.
GRAPHIC: China's yuan weakens past 7 per dollar - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5107/5107/China's%20yuan%20weakens%20past%207%20per%20dollar.png
Major airlines posted losses in the first half, as a softer yuan ate into their profits, given their large amounts of dollar-denominated debt.
GRAPHIC: Airlines, developers and machinery firms underperform amid trade tensions - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5116/5116/Airlines,%20developers%20and%20machinery%20firms%20underperform%20amid%20trade%20tensions.png
Get The News You Want
Consumer firms were among China's better performing sectors as Beijing rolled out measures to stimulate China’s domestic consumption. Market bellwether Kweichow Moutai (SS:600519), a famous liquor maker, reported 27% profit growth.
To offset effects of the trade war, Chinese policymakers rolled out measures including tax cuts and lower reserve requirements for banks, which were pushed to lend to smaller companies.
GRAPHIC: China's consumer stocks outperform as Beijing spurs domestic demand - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5104/5104/China's%20consumer%20stocks%20outperform%20as%20Beijing%20spurs%20domestic%20demand.png
Tech firms, in focus after the United States imposed restrictions on major Chinese tech giants including Huawei Technologies, got a boost from China's continued push for technological independence, in particular the newly launched STAR Market board which is modeled after Nasdaq.
Leading tech firms, in particular those in the 5G industry chain, posted robust first half profit growth.
GRAPHIC: China's tech sector shines as Beijing pushes for tech self-sufficiency - https://fingfx.thomsonreuters.com/gfx/buzzifr/14/5105/5105/China's%20tech%20sector%20shines%20as%20Beijing%20pushes%20for%20tech%20self-sufficiency.png
(This story corrects some data in the chart on industrial profits)
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.