What trade war? Chinese companies wow with third quarter report card

BENGALURU (Reuters) - The top 200 Chinese companies spanning consumer, technology, industrial, property and financial industries reported September quarter earnings well ahead of market expectations, setting them up for a strong showing next year, analysts said.

People stand near a window overlooking the financial district in Shanghai, China October 23, 2019. Picture taken October 23, 2019. REUTERS/Stringer/File Photo

These companies mostly beat lowered market expectations as consumer spending remained strong, boosted by Chinese shoppers who opted to buy at home than to travel abroad, as a weaker yuan inflated travel costs.

Profits at Chinese companies grew 10% in the July-September period, beating the 2% growth rate analysts had predicted, and ahead of China’s slowing economic growth rate. Only companies with a market capitalization of over $1 billion and tracked by at least three analysts are covered in this analysis.

Graphic: Asian firms September profit growth by country

“The sectors that were expected to suffer from the U.S.-China trade conflict — the tech hardware exporters, textiles and sports goods exporters — have largely outperformed consensus expectations,” said Manishi Raychaudhuri, head of equity research at BNP Paribas Asia Pacific.

Graphic: Asian firms September profit growth by sector

Raychaudhuri added that earnings growth at Asian companies, excluding Japan, is likely to bounce back in 2020, partly as trade concerns recede.

Graphic: Profit growth for Asian firms

Below is a report card of the third quarter for Asian companies and expectations for next year.

- Online retail giants Alibaba Group Holding Ltd and Inc posted strong sales as people bought baby products and sports gear. Western luxury and mass-market consumer companies had a good quarter as well.

- Overall, profitability at 1,625 Asian firms fell 5%, versus an expected 6% decline, according to a Reuters analysis of Refinitiv data. Results outperformed estimates for the first time in five quarters.

- Hong Kong-listed firms are not included in this analysis, as most of them announce earnings results on a semi-annual basis.

- Profits at 346 South Korean firms nearly halved, dragged down by lower chip prices and a fluctuation in commodity prices.

- Profit at Samsung Electronics Co Ltd fell 56%. Smaller rival SK Hynix Inc posted its lowest profit in three years. Steelmaker Posco’s earnings plunged by a third as iron ore prices rose.

- Profits at 201 Indian firms rose 29.5%, led by consumer staples, financial and healthcare firms and helped by a corporate tax cut.

- Profits at 673 Japanese firms which exclude SoftBank Group Corp, fell 1%, in line with estimates, as the yen firmed and demand fell for export items such as cars and machinery.

- The top three Japanese steelmakers and carmakers Suzuki Motor Corp and Mitsubishi Motors Corp have reduced their annual profit forecasts.

- Analysts expect profits at Asian firms to jump 13% in 2020, versus a 5% estimated increase this year, helped partly by recovering global demand as trade worries ease further.

Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Edited by Sayantani Ghosh and Shounak Dasgupta