The Chinese stock market, the second largest in the world, has lost $3.5 trillion from its peak in May, according to data collected by Bloomberg. The downturn intensified last week, pushing the CSI 300 index on the mainland exchange into a bear market, and causing the Hong Kong technology sector index to erase all gains made since Beijing introduced a massive growth support package two years ago.
The primary reason for investor pessimism is the growing realization that prolonged consumption slump and downward pricing trends among businesses are putting increasing pressure on profits across all sectors—from banks to electric vehicle manufacturers and artificial intelligence model developers. This situation is worsened by the growing belief that Chinese leaders are not rushing to stimulate an economy that is slowing down, but doing so at an acceptable pace.
Ulrich Urban, Head of Multi-Asset Strategic Analysis and Research at Berenberg, noted: 'It is too early to conclude that the worst is behind us. The main problem remains profitability: China's strength in manufacturing and exports is not consistently translating into higher domestic demand, pricing power, or corporate profits.'
The third-quarter earnings season started poorly: battery giant Contemporary Amperex Technology Co. Ltd. (CATL) reported missing profit forecasts, which is symptomatic of both weak demand and fierce competition. According to Bloomberg data, consensus profit forecasts for MSCI China index members for 2026 have dropped by more than 4% since late March. The Hang Seng Tech Index, dominated by Chinese internet companies involved in e-commerce price wars, saw profit forecast declines of over 13% during this period.
Nevertheless, MSCI China constituents that released results missed consensus estimates by an average of 9%, marking the second worst quarterly performance in two years, according to Bloomberg calculations. Among them, AI infrastructure builder China Mobile Ltd. recorded an 8% year-on-year drop in net profit from January to September due to cost pressures, while major raw material company Ganfeng Lithium Group Co. also failed to meet expectations due to falling prices.
Jason Lemire, Chief Investment Officer at Bold Wealth Partners, commented on the CATL situation: 'CATL is a prime example of what is happening: an excellent innovative company that does wonderful things but is a victim of brutal competition and margin compression. Competition in China is encouraged and is generally harsh, rather than shareholder-friendly.'