China’s economic recovery is taking longer than expected, Citi says

BEIJING — China’s economic recovery is taking longer than expected, prompting Citi analysts to push back their forecasts for a stock market rebound by three months.

Instead of June, Citi now expects it will now take until the end of September for the Hang Seng Index to reach 24,000, analysts said in a report Thursday. That’s about 18% above current levels.

The Hang Seng Index closed at 20,331.20 on Thursday, up about 2.8% for the year so far.

“We expect [first-quarter 2023 corporate] results to be on the weaker side as post COVID recovery seems slower than expected,” the Citi report said. It said analysis of 2022 results of 316 Chinese companies found more misses than beats.

China has reported a modest recovery in economic growth for the first two months of the year. The country ended its stringent Covid controls in December.

Earnings from Chinese e-commerce giants JD.com and Alibaba have also indicated that consumers remain conservative about spending.

However, Tencent’s quarterly results showed businesses were more willing to spend on advertising, especially in the company’s growing video accounts and e-commerce portals.

Citi said it added Tencent to its to Hong Kong stock picks, along with retailer Topsports and state-owned Sinopharm.

Sands China, Chow Tai Fook and Air China remain on the firm’s stock picks list.

The analysts also delayed by three months — to the end of September — their expectations for a rebound in two other Chinese stock indexes.

For the CSI 300, Citi has a target of 4,500, or about 9% above Friday’s level of near 4,125.

For the MSCI China index, Citi has a forecast of 78. That’s about 18% above current levels near 66.

Falling exports from slower growth in the U.S. and Europe is weighing on China’s economy, along with a slump in the massive real estate sector.

Goldman Sachs credit strategy analysts said in a report Thursday they expect Chinese property developers’ high-yield default rate will be 19% this year.

That’s better than the 46.4% last year, but “still at an elevated level, reflecting the uncertain pace of recovery for the physical property market,” the report said.

However, a quarterly People’s Bank of China survey released this week indicated more people in China want to buy houses again, along with greater expectations that home prices will rise.

China’s movie box office has also started to show some signs of recovery.

Animated film “Suzume” this month became the highest-grossing Japanese film in China with a box office of more than 650 million yuan ($94.49 million), surpassing that of prior first-place title “Your Name,” according to movie ticketing site Maoyan. Both films were made by the same director.

The data showed “The Super Mario Bros. Movie” grossed 32.3 million yuan on its opening day in China on Wednesday, a local holiday. That marked the biggest opening for a Hollywood animation since the pandemic began in 2020, Deadline pointed out.

More foreign movies are now being allowed in China after authorities only allowed a handful of overseas titles to screen during the pandemic.

China is set to release first-quarter GDP and other economic data on April 18.

For 2023, Citi expects consumer discretionary and utilities companies to post the greatest growth in earnings per share among Hang Seng Index sectors, while energy and industrials will likely see declines.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “The Super Mario Bros. Movie.”