For many companies, it feels like a hard landing already29 July, 2012, 18:57. Posted by Zarathustra
Tags: Hong Kong
Earlier this month, we have noted that Hong Kong-listed companies are issuing profit warning at a rate very close to 2008/09 crisis.
As the month of July is coming close to an end, the number of profit warnings for the month issued by Hong Kong-listed companies (many of them are Chinese companies) has already surpassed the peak that was reached during the 2008/09 financial crisis. Although not all of them are Chinese companies, it does suggest that China’s corporate sector is probably facing a situation which is, to them, already worse than the financial crisis after the bankruptcy of Lehman Brothers. In short, it already feels like a hard landing for many companies even though the heavily massaged Chinese macro data are not there yet.
The chart below shows the number of profit warnings each month.
Of course, as we suggested before, the model of economic growth for China which relies of investment with little focus on return will mean that despite investment can generate GDP, companies will find it even harder to earn decent return. Thus not only do we see the Chinese economy in a slowdown which is worse than macro data suggest, but also a possibility of some sort of decoupling between corporate profitability and economic growth.