Umair
Tariffs or not, Chinese markets are still waiting for earnings to turn around, analysts point out. “Regardless of what the number of the tariffs are for China, it comes back to the domestic stimulus for China and whether China can alleviate the deflation pressures,” Aaron Costello, head of Asia at Cambridge Associates, said Thursday. Beijing “has clearly shown a desire” to stimulate the economy, Costello said, noting details are due out at an annual parliamentary meeting in March. “The potential for Chinese equities to rebound sharply is there, so we don’t want to be underweight China, we want to be neutral,” he said. Chinese stocks closed higher Friday after U.S. President Donald Trump ‘s latest comments indicated reluctance to raise tariffs , despite threatening a day earlier that 10% duties could come as soon as Feb. 1. The mainland market also got a lift Thursday after financial regulators effectively mandated state-backed insurers to buy more stocks . While the directive offers longer-term support for stocks, “we reiterate our preference for the A-share market, and for stocks with stable cash returns and decent dividend yields ,” Morgan Stanley’s Chief China Equity Strategist Laura Wang said in a note Thursday. She referred to the firm’s report on Jan. 20 for a list of “well positioned” names. Morgan Stanley surveyed its analysts for Chinese stocks for which they expected to see solid earnings growth in the year ahead. The stocks must be rated overweight or equalweight, have a market capitalization of more than $2 billion and average daily trading turnover of more than $2 million. The three names with the highest expected earnings growth for 2025 are: Espressif Systems — The Shanghai-listed company develops chip sets for home appliances. Earlier this month it said its net profit more than doubled in 2024 . SICC — Founded in 2010, the Shanghai-listed company produces silicon carbide substrate, used in semiconductors. It said in December it plans to list in Hong Kong at an unspecified date . Zijin Mining — The Hong Kong-listed mining company, which extracts metals such as copper, gold, zinc and lithium, said net profit in the third quarter rose by more than 50% from a year ago. Morgan Stanley expects each company can grow earnings per share by at least 40% in 2025. “Quality earnings beats becoming a proven alpha generator in the China equity space and should continue to be so,” the analysts said in the Jan. 20 report. They said Chinese stocks have missed earnings expectations for 13 straight quarters since late 2021. But in their historical analysis of stock performance between 2021 and 2024, they found that earnings beats and upward revisions led to significant outperformance versus companies that missed or had earnings estimates cut. Overseas revenue has increasingly become a growth driver for Chinese companies as they face a slower economy at home. And despite worries about geopolitics hitting cross-border e-commerce, Bernstein analysts pointed out in a Wednesday note that the market outside the U.S. is “as big, if not bigger than the U.S. one.” Total e-commerce gross merchandise value in the U.S. was $1.1 trillion in 2023, while the next 29 markets for which eMarketer has data had a total GMV of $1.5 trillion, Bernstein said. Bernstein analysts expect PDD and Alibaba earnings to grow in the year ahead, but the only one they rate outperform is the Temu parent. They have a price target of $150 a share on PDD, for upside of more than 40% from Thursday’s close. “From an investing standpoint, our sense is global (and in particular US) investors take a very US-centric view of Temu, and what it means for PDD’s shares,” the analysts said. “In contrast, we’d argue that Temu’s US experience in the past 12-18 months — showing a large jump in profitability once new user acquisition was de-emphasised — demonstrates the path to profitability elsewhere.” — CNBC’s Michael Bloom contributed to this report.
