Natixis assesses China’s 3,000 largest listed firms as MSCI inclusion looms

HONG KONG – Global asset manager Natixis has released its second China Corporate Monitor, which analyses the corporate health of China’s 3,000 largest listed companies, and compares them with global peers. This report is is seen as timely because many of these corporates will soon be part of the MSCI index.

The report says the financial health of Chinese corporates seems to have improved, but with a number of important caveats.

“First, the general improvement is coming from larger revenue due to better economic data. However, leverage has continued to be increasingly supported by very lax financial conditions during most of 2016. Second, compared to global peers, the improvement has been much smaller for Chinese corporates.”

Apart from the aggregate view, the report also providesl analysis of ownership, market difference, asset size and industry, with summary indicators of corporate financial health.

It says –

On Ownership: Privately owned enterprises (POEs) have improved financial health much less than SOEs. Within SOEs, the financial improvement is still muted with low profit margin (especially for central SOEs) notwithstanding negative growth in capex.

On Market Difference: Markets with foreign exposure are healthier. Corporates in the Shenzhen-Hong Kong Stock Connect rank first in terms of lower leverage and better profit margins, as well as being the only group with positive capex growth.

On Asset Size: The top 100 largest Chinese corporates (with as much as 50% of listed assets) are by far worse than the rest of the corporates and the 100 largest global peers, especially in terms of indebtedness and leverage growth.

On Industry: “New Economy” is not only performing better than the “Old Economy” but also global peers. Airlines, semiconductors and renewables appear to be the best picks when comparing to the world, while the real estate sector continues to be the worst within China and in relative terms.

www.natixis.com (ATI).