Recently, Hong Kong-listed companies (many of which are Chinese companies) have issued profit warnings at a record pace. There is little doubt that many of these companies are facing an environment which, to them, is probably not much different from a hard landing.
Although I am not at all optimistic about China’s economy over the medium term (as well as corporate profit in general), a note from Credit Suisse suggests a contrarian interpretation of record profit warnings.
The chart below shows the updated counts of profit warnings for July and August (month to date). The count for July has broken any past records, pointing to a difficult environment in which these companies are operate. On top of that, I have plotted the Hang Seng Index (HSI). As Credit Suisse noted, the number of profit warnings peaked on March 2009, which happened to be the month when the index bottomed out.
Some food for thought.