A sharp rally in Chinese stocks this year has been driven more by investor optim...
SHANGHAI/BENGALURU - A sharp rally in Chinese stocks this year has been driven more by investor optimism than fundamentals, based on an analysis of corporate earnings estimates in an economy expanding at its slowest pace in 28 years.
That implies that investors who have pushed the market up 22 percent this year are hoping for a turnaround in earnings, which often lags share prices. “The impact from Beijing’s tax cuts and expenses reductions in 2019 will be between 150-400 billion yuan on the A-share market, accounting for 4-9 percent of their net profits,” investment bank China International Capital Corporation Limited said in report.
“It’s a misperception that solid fundamentals are not needed for a bull run, which is now in its first stage, and the signal for the second stage will be earnings growth recovery after bottoming out,” Haitong Securities wrote in report. Shares of Fuling Zhacai, dubbed one of China’s “super brands”, hit a new high after it reported strong profit growth in 2018 and expected a 26 percent revenue gain in 2019.
Market participants believe a new technology board in Shanghai will help improve the valuations for tech firms already listed on the A-share market.
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