Why China is the future

Earnings Watch: Chinese earnings and earnings growth during inflation

Equities 8 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity update we discuss Chinese earnings including the positive earnings surprise from Pinduoduo before the US market open. We also touch on Nike's earnings later tonight which are expected to decline 21% from a year ago on input cost pressures and more competition in China from competitors such as Anta Sports that reports earnings tomorrow. Finally we talk earnings dynamics during inflation and what types of companies and themes will do well during inflation.


Earnings surprise from Pinduoduo and other Chinese earnings

The earnings season in the US and Europe is running out of fuel but this week is interesting for those that follow the Chinese equity market. Several important Chinese technology and consumer companies are reporting earnings.

Chinese Pinduoduo, which is an agriculture-focused technology platform connecting farmers with consumers, has surprised ahead of the market open in the US with Q4 adjusted earnings of CNY 5.88 vs est. CNY 2.02 despite worse than expected number of active buyers and Q4 revenue of CNY 27.2bn vs est. CNY 30bn. Shares are up almost 5% in pre-market trading.

Source: Saxo Group

Later tonight after the US market close, Nike will report FY22 Q3 earnings (ending 28 February) with analysts expecting a meager revenue growth of just 2.4% y/y and adj. EPS growth of -21% y/y as rising input costs are impacting the operating margin and Chinese nationalism is causing headwinds in the Chinese revenue segment; Nike’s big Chinese competitor is Anta Sports which reports tomorrow.

The next week’s most important earnings are list below with the names in bold being those that can either move market sentiment or an entire cluster of equities:

Monday: HK & China Gas, Nike, Pinduoduo

Tuesday: Xiaomi, Anta Sports, Foxconn, Wuxi Biologics, Partners Group, Adobe

Wednesday: Tencent, China Mobile, WuXi AppTec, IHS Markit, Yihai Kerry Arawana, Cintas, General Mills

Thursday: China Life Insurance, Industrial Bank, Foshan Haitian Flavoruing, China CITIC Bank, NIO

Friday: China Shenhua Energy, CNOOC, Bank of Communications, Anhui Conch Cement, Longfor Group, People’s Insurance, China Everbright Bank, Meituan

Earnings and equity markets during inflation

With the Fed finally acknowledging that inflation is becoming entrenched given their more hawkish rate decision last week the question for investors are what does inflation mean for equity returns and earnings growth. The lesson from the 1970s is that US companies actually grew earnings above the long-term trend growth which is maybe not that surprising given nominal growth was high relative to the subsequent decades. While earnings growth was strong from the lows in 1973 the equity returns were bad in nominal terms and a catastrophe in real terms as the inflation caused a massive contraction in the earnings multiple investors were willing to pay.

10-year inflation swaps are currently priced at 3.1% and if the inflation outlook deteriorates investors will be forced to think about the relationship between multiple contraction, earnings growth and starting valuation. In our upcoming Quarterly Outlook we focus on productivity, innovation and pricing power as the three ingredients that will become important in filtering out good investments during an inflationary environment. Our stance on which themes to overweight for now has not changed and the themes are cyber security, logistics, commodity sector and defence. We have also decided to include the green transformation and batteries into this group as Europe’s massive investments in the green transformation will create a massive boost for these companies going forward.

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.