[1/2] Travelers walk with their suitcases at Beijing Daxing International Airport in Beijing, China April 24, 2023. REUTERS/Tingshu Wang/File Photo
HONG KONG, May 10 (Reuters) – People in China have splurged on restaurants, travel and luxury goods after three years of pandemic restrictions, but are still not freely spending on everyday consumer goods, if first-quarter corporate results are any indication.
After China ended its zero-COVID policy with city-wide lockdowns and blanket quarantines in December, there was a broad jump in profits, but consumer caution about global growth and the jobs outlook has weighed on confidence and aggregate demand.
China A-shares (.SSEC) posted 3.2% year-on-year earnings growth in the first three months, rebounding from a 5.7% decline in the fourth quarter of 2022, estimates BofA Securities.
However, the benefits for companies have varied widely, despite the economy growing faster than expected in the first quarter.
Restaurants and tourism businesses rebounded, with revenue from the travel-related consumer services sector rising 155%, data from China International Capital Corp (CICC) showed. Food and beverage earnings rose 18% and autos rose less than 8%.
In contrast, profits for both home and apparel companies fell 9%.
The sub-sector results further underscore the divergence in consumer behavior. Big jewelry brands Lao Feng Xiang (600612.SS) and Chow Tai Seng (002867.SZ) posted double-digit profit growth, while leading cosmetics company Bloomage Biotechnology (688363.SS) saw its net profit fall 17% on the back of lukewarm online sales .
Norman Villamin, Group Chief Strategist at UBP, said consumer confidence is being restored gradually and over time.
“If you’re a little nervous, maybe spend some money on ‘a one-time transaction.’ Maybe no one gets on the 4 hour plane journey, but they take the train for an hour. You’re eating out, but you might not see the movie. You start out slow, but as the year goes on you get more comfortable and start doing a little bit more,” he said.
Several analysts believe the first quarter will be the bottom for 2023 and full-year earnings will be in double digits.
Refinitiv data forecasts full-year earnings growth of 26% for companies listed on the Shanghai Stock Exchange.
“Investors can look beyond the first quarter results and focus on the momentum of the earnings revision for the second quarter,” said Redmond Wong, Greater China market strategist at Saxo Markets.
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The benchmark Shanghai Composite (.SSEC) is up 8% so far in 2023, although equities declined somewhat in April as corporate bonds delivered mixed results.
Materials were the worst performers, with steel and building materials each falling more than 60%. Real estate, healthcare and apparel were notable underperformers, while financials, consumer services and utilities outperformed on positive growth, data from (CICC) showed.
Analysts believe earnings have bottomed and could improve in the coming quarters after the April Politburo meeting suggested policymakers will take vigorous fiscal and monetary measures to support the economic recovery.
Nevertheless, the stratification of consumption seems to have continued at least in the second quarter.
This month’s Labor Day holiday data showed that households ate out and took short domestic trips but were unwilling to spend on discretionary goods and products, said David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco .
Reporting by Summer Zhen; Additional reporting from Patturaja Murugaboopathy in Bangalore; Edited by Vidya Ranganathan and Jacqueline Wong
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