Pressure is mounting on Chinese stocks amid declining corporate profits, threatening to prolong a sell-off that has wiped out more than $3.5 trillion in stock market value since May.
This downward trend pushed China’s CSI 300 index into bear market territory last week, while Hong Kong’s tech stocks approached levels that would erase gains made since Beijing launched its major stimulus package two years ago.
Weak consumer spending and fierce competition between companies have eroded profit margins across multiple sectors, including banks, electric cars and artificial intelligence.
The combined earnings forecast for 2026 for companies listed on the MSCI China index has fallen by more than 4% since March.
Earnings expectations for the Hang Seng Tech Index also fell by more than 13% during the same period.
Third-quarter corporate results fell short of earnings expectations by an average of 9%, putting the index on track for its second-worst quarterly performance compared to expectations in two years.
Battery maker CATL reported disappointing quarterly earnings, while China Mobile saw its net income decline by 8% in the first nine months of 2026.
Ganfeng Lithium's profits also fell short of expectations amid declining commodity prices.
In contrast, Alibaba (NYSE) sought to secure additional funding for its artificial intelligence investments, including a $10 billion share offering that diluted existing shareholders' stakes.
Investor confidence has declined further, with trading volumes in the main market nearing their lowest levels since July 2025, and margin financing falling to its lowest level in a year.
Chinese authorities have turned to state-backed investment funds to stabilize stock markets, but investors remain skeptical about the likelihood of substantial economic stimulus measures.
China’s economy grew 4.5% year-on-year in the third quarter, keeping growth within the government’s target range of between 4.5% and 5%.
However, some institutional investors have adopted a cautiously optimistic stance, based on the fact that valuations are still reasonable and that lower bond yields may encourage investment towards equities.
