March 3 (Reuters) - Chinese stocks could get some respite in the coming months after a big decline in February, as companies begin to enjoy a post-reopening earnings revival and as investor optimism over growth returns. The MSCI China index fell 10% in February, after solid gains of over 43% in the previous two months spurred by China's economic reopening after the relaxation of some of the world's toughest COVID curbs.
Concerns over Sino-U.S. tensions, Federal Reserve tightening and domestic policy worries as China's annual parliamentary meeting kicks off prompted investors to book profits. They are also churning stocks at the fastest pace on record, analysts say, because of that uncertainty . Still, analysts have lifted earnings expectations for Chinese firms and now predict 15.1% growth in 2023, an improvement from the 14.3% increase forecast at the start of the year, IBES data shows. The earnings growth for 2022 is estimated at 9.7%. "We expect the start of the earnings season to provide some fresh upside catalysts and expect company management to reaffirm their post-reopening earnings recovery," said Mark Haefele, global wealth management chief investment officer at UBS AG.
He said the benefits of China's reopening have not been fully reflected in the current valuations and that he still looks for about 20% price returns over the next 12 months.
Economic data released this week showed China's manufacturing activity expanded at the fastest pace in over a decade in February, and its new export orders rose for the first time since April 2021. Analysts expect the bulk of the earnings recovery to be driven by retail consumption as Chinese households spend pent up pandemic savings.
According to Refinitiv data, the consumer discretionary and industrial sectors' profits are expected to rise 29.8% and 25.8% this year, respectively, well above their growth of 20.3% and 9.3% respectively in 2022. Earnings for the real estate sector, which fell 16.9% last year, are expected to grow 16.2% in 2023.
February figures painted a rosy picture as China's new home sales rose sharply, buoyed by a rise in demand in small and medium-sized cities. Also, China's tourism sector, which was hit badly during the pandemic, is expected to post higher growth. The tourism academy predicts the domestic tourism revenue to recover to about 71% of 2019 levels.
"Investors would likely require concrete evidence to confirm that fundamentals are indeed improving as the cycle transitions into growth," said Goldman Sachs in a note. "We expect earnings growth realisation and upgrades to take over to drive further equity gains." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Net income growth for China based companies Breakdown by sector for Chinese companies' net income growth in 2023 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan & Shri Navaratnam)
