China Equity Strategy 2Q24 Earnings Review 12th consecutiv...-110241837

M UpdateChina Equity Strategy | Asia Pacific2Q24 Earnings Review: 12th consecutive Quarterly Miss; Slightly Better than 1Q24 Morgan Stanley Asia Limited+Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Chloe LiuEquity Strategist Chloe.Liu1@morganstanley.com +852 2848-5497 Catherine ChenEquity Strategist Catherine.Chen@morganstanley.com +852 3963-4186 Morgan Stanley Asia (Singapore) Pte.+Jonathan F GarnerEquity Strategist Jonathan.Garner@morganstanley.com +65 6834-8172 Exhibit 1 : History of Chinese equity market earnings surprises by number of companies -12%-7%-10%17%9%-13%-3%-25%10%3%0%12%9%-20%-16% -14% -14%-25%-19%-21%-18%-29%-30%-20%-17%-9%-15%-19%12%-6%-20%-14%-23%5% 3%-7%8%8%-22% -22%-24%-24%-36%-26%-24%-30%-33%-38%-27%-24%-50%-40%-30%-20%-10%0%10%20%2Q 20183Q 20184Q 20181Q 20192Q 20193Q 20194Q 20191Q 20202Q 20203Q 20204Q 20201Q 20212Q 20213Q 20214Q 20211Q 20222Q 20223Q 20224Q 20221Q 20232Q 20233Q 20234Q 20231Q 20242Q 2024MSCI ChinaMSCI China A Onshore Source: MSCI, Bloomberg, RIMES, Factset, Morgan Stanley Research. Data as of September 3, 2024. Exhibit 2 : History of Chinese equity market earnings surprises by weighted surprise -1%3%-7%9%4%2%-2%-7%-3%9%-1%5%1%-2%-7%-2%0%-19%5%23%7% 6%7%7% 8%-5%1%-17%8%2%0%-8%-9%-8%10%-5%4% 1% 2%-4%-7% -6%-16%-16%-5%-11%-8%-16%-9%-4%-30%-20%-10%0%10%20%30%2Q 20183Q 20184Q 20181Q 20192Q 20193Q 20194Q 20191Q 20202Q 20203Q 20204Q 20201Q 20212Q 20213Q 20214Q 20211Q 20222Q 20223Q 20224Q 20221Q 20232Q 20233Q 20234Q 20231Q 20242Q 2024MSCI ChinaMSCI China A Onshore Source: MSCI, Bloomberg, RIMES, Factset, Morgan Stanley Research. Data as of September 3, 2024. 2Q24 earnings missed consensus again, although by a smaller scale vs. 1Q24. Internet companies posted strong results, while most of other sectors missed expectations. We continue to caution against premature optimism at the broad index level and recommend adding more defensiveness. Key takeaways from Chinese equities' 2Q24 earnings season (based on 94% of MSCI China and 82% of MSCI China A Onshore market cap reported): For MSCI China, net net, 17% of companies missed consensus forecasts by number of companies, slightly better than previous quarter (-19.9% in 1Q24) while recording a net beat by weighted surprise (+8.4% vs. +6.7% in 1Q24), thanks to Internet companies (Exhibit 2). This quarter marks the 12th consecutive quarterly earnings miss, the longest in our tracking history since 2018. The set of results is slightly better than 1Q24 but earnings delivery divergence stayed wide this quarter.For A-shares, reported earnings missed consensus forecasts by number of companies (-23.7%, vs. -26.7% in 1Q24) but were largely in line by weighted surprise (-3.6%, vs. -9.0% in 1Q24). Overall A shares have shown a similar result pattern compared to MSCI China, but with a worse magnitude. In revenue terms, both MSCI China and A-shares missed consensus revenue estimates by number of companies but posted in-line resul