Yes, we had another rally this week, and the Shanghai Composite Index has closed up 4.09% since last Friday. That’s despite what most lay observers would consider to be some pretty bad earnings reports from major companies. Overall, state-owned industries saw profits drop 43.7% in the first two months of the year. But for truly stomach-churning drops, look at Bank of China (fourth quarter profit down 59%) and China Telecom (2008 net profit down 96%).
Nevertheless, a 96% drop in profit still means the company finished the quarter with more money than it started – it’s not great by corporate China’s recent stellar standards, but we it suppose passes for a silver lining these days. And if Jiang Jianqing, chairman of Industrial and Commercial Bank of China (ICBC, 601398.SH), is to be believed, a full revival is just around the corner. Incidentally, ICBC did pretty well this week, rising 4.77%.
Maybe. We’re still not convinced. The H-shares of mainland companies continue to trade well below their A-share equivalents. That could be a sign that the rest of the world hasn’t yet cottoned on to China’s stimulus success story, and it might be a reflection of pension funds not having the cash to take advantage of great China deals.
Another possibility is that A-shares, more sensitive to the whims of retail investors, are simply riding a wave of stimulus-fueled sentiment. No points for guessing which way we’re leaning.