BEIJING: Pessimism has gripped Chinese stocks, with no end in sight for a deepening sell-off as investors confront the realities of an economy that’s weak enough to erode corporate profits but not to trigger forceful new stimulus.
The world’s second-largest equities market has lost US$3.5 trillion in value from a peak in May, data compiled by Bloomberg show.
The rout intensified last week, pushing the onshore benchmark CSI 300 Index into a bear market and a technology sector gauge in Hong Kong toward erasing all its gains since Beijing’s sweeping growth support package two years ago.
At the heart of investor gloom is an unsettling realisation that a protracted consumption slump and the race-to-the-bottom mentality among businesses is taking a heavier toll on earnings across industries from banks to electric car makers and AI model developers.
Further darkening the outlook is the growing perception that Chinese leaders are in no rush to jump-start an economy that is slowing but at a tolerable speed.
“It is too early to conclude that the worst is over,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg.
“The biggest concern remains profitability: China’s strength in production and exports is not translating consistently into stronger domestic demand, pricing power and corporate earnings.”
The third-quarter (3Q26) reporting season got off a disappointing start, with battery giant Contemporary Amperex Technology Co Ltd, or CATL, suffering a profit miss that was symptomatic of both weak demand and fierce competition.
The consensus 2026 earnings forecasts for the MSCI China Index members has declined by over 4% since the end of March, according to data compiled by Bloomberg.
The Hang Seng Tech Index, dominated by Chinese Internet firms mired in eCommerce price wars, has seen profit projections plunge more than 13% during the period.
Yet, even against the lowered expectations, the MSCI China’s constituents that have released results have missed consensus forecasts by an average of 9%, set for the second worst quarterly miss in two years, according to Bloomberg calculations.
Among them, artificial intelligence (AI) infrastructure builder China Mobile Ltd’s January-September net profit tumbled 8% on year amid cost pressures, while major materials firm Ganfeng Lithium Group Co also missed estimates on falling prices.
“CATL is the best poster child of what’s going on: great innovative company that’s doing great things but a victim of cut-throat competition and margin squeeze,” said Jason Lemire, chief investment officer at Bold Wealth Partners. “Competition is encouraged and generally brutal in China, not shareholder friendly.”
The earnings pressure has left companies, particularly China’s Internet behemoths that are in a tense race to fund costly AI infrastructure build-outs, increasingly out of cash.
That has forced some of them to tap the equities market to raise funds, such as Alibaba Group Holding Ltd’s US$10bil follow-on stock sale, which further diluted share value.
“I’d always weigh Japan, Korea and Taiwanese firms over China because they have better earnings,” said Stanley Tang, senior portfolio manager at Sumitomo Mitsui DS Asset Management.
“If you ask me what China can do, hard to think of any - even further localisation of tech may not help to boost share prices.”
Turnover in China’s onshore stock market is hovering near the lowest level since July last year, while the outstanding amount of margin trades – bets funded by borrowed cash – fell to the least in a year.
“Policymakers are comfortable with the nature of economic growth,” said William Bratton, head of cash equity research for Asia Pacific at BNP Paribas. “As a result, either because they’re consciously keeping it in reserve or because philosophically they don’t believe in it, there’s no urgency to use fiscal measures to promote large scale consumption.” — Bloomberg
