Chinese Profits and Stock Market Performance
Chinese profits rose 25.7%. The CSI 300 fell by 9% and the Star 50 by 29% in the quarter ending June.
Beijing's stock market is the first major market to experience a full AI capital expenditure (capex) cycle reflected in reported profits, while Europe has not yet begun significant spending in this area.
Key Takeaways:
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Profit Growth: Onshore-listed Chinese companies saw a 25.7% rise in profits for the three months ending June, the fastest growth in nearly five years.
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Market Performance: Despite strong profit numbers, both the CSI 300 and Star 50 indices experienced declines. The CSI 300 dropped about 9%, while the tech-heavy Star 50 fell by 29%.
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AI Impact: Profit growth was heavily concentrated in AI-linked firms, but investors began viewing AI spending as a cost rather than a future investment.
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Global Comparison: China is the first large market to observe a full capex cycle in AI-related profits, while Europe's spending is still in the planning stages.
Quote:
“Strong numbers no longer work for tech.” - Vey-Sern Ling, Managing Director at Union Bancaire Privee
Additional Insights:
- Domestic factors, including weak demand, a property downturn, and exchange losses, contributed to the market's performance.
- New listings have reduced liquidity from already highly traded stocks.
- Tax enforcement has also tightened in China.
- Europe's AI spending cycle lags behind China's, with significant proposals for gigafactories still in the evaluation phase.