AN improvement in early earnings indicators is offering some hope for China’s flagging stock market, even as an uncertain economic and geopolitical outlook keeps expectations for any big rally in check.

Positive alerts by mainland-listed companies have seen a “significant” jump versus the second quarter, and outnumbered negative profit warnings, according to Morgan Stanley.

UBS Securities estimates profit growth of flat-to-5% for A-share companies in the July-September period, versus a decline in the previous quarter.

A relatively better earnings picture is emerging after China’s economic recovery gained momentum during the last quarter, with people boosting spending on everything from restaurants and alcohol to cars.

Authorities have also stepped up economic support by raising fiscal deficit and issuing additional sovereign debt. That is certainly a welcome sign for traders, who have seen stocks hit several grim milestones over the past week despite a series of recent market-boosting measures from policymakers.

“We expect another quarterly miss, though likely at a smaller scale vs. before,” Morgan Stanley strategists, led by Laura Wang, wrote in an Oct. 19 note, citing China’s “strong” third-quarter GDP data as one reason.

Still, “final earnings results for the third quarter remain to be seen given the less indicative nature of the pre-announcements,” they wrote.

Shares of some companies such as electric vehicle bellwether BYD Co. and beauty product retailer Sa Sa International Holdings Ltd. have reacted positively to their upbeat preliminary earnings. However, such moves have been lost amid the broader market gloom.

The MSCI China Index has dropped more than 6% in October to head for a third monthly decline. The onshore benchmark CSI 300 Index recently erased all the gains seen during the massive reopening rally that took off in late 2022.

While China’s real estate weakness and higher-for-longer U.S. rates have been among the key concerns for investors, the Israel-Hamas war has also spurred volatility of late and triggered a global equities selloff that makes it even harder for China’s stocks to stage a recovery. (SD-Agencies)