Chinese corporate earnings are set to climb as much as 10 percent next year as the world’s second-biggest economy emerges from its slowdown and more people move to cities, Russell Investments says.
Companies that can benefit from an increase in domestic consumption may post even greater growth, Gustavo Galindo, who helps manage $8 billion of emerging-market equities for Russell in New York, said in a phone interview.
“What you have is more and more people joining into the middle class and that trend is very likely to continue,” Galindo said. “When the economy improves, they have to buy more goods and services and they are the ones that will be pushing consumer companies to better profits.”
Goldman Sachs Group Inc. raised its fourth-quarter and 2013 economic growth forecasts for China Monday to account for gains in production, after data last week showed industrial output climbing the most in eight months in November. Retail sales last month also rose at the fastest pace since March, adding to signs the economy is emerging from a slowdown that started in the fist quarter of 2011.
The Russell Emerging Markets Fund that Galindo oversees has returned 16 percent this year, beating 43 percent of its peers. The MSCI Emerging Markets Index has returned 18 percent, while the Shanghai Composite Index of domestic Chinese shares posted a return of 0.9 percent, data compiled by Bloomberg show.
The average earnings per share of companies in Hong Kong’s Hang Seng China Enterprises Index grew 4.3 percent in the 2012 fiscal year, data compiled by Bloomberg show. EPS growth for the Shanghai Composite was 17 percent.
Chinese policy makers have set an initial growth target of 7.5 percent for 2013, the same as for 2012, according to two bank executives and a regulatory official briefed on the matter who asked not to be identified because they aren’t authorized to disclose the information.
The country’s new leaders have pledged to support greater urbanization, with as many as 300 million people moving from the countryside by 2030, to join 600 million already living in cities, the Organization for Economic Cooperation and Development estimates show.
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