China’s leadership has been aggressive with its reforms as it tries to get its hot economy on the path to sustainable growth.
One of President Xi Jinping’s major efforts has been his crackdown on corruption, which saw policymakers enjoying the generosities of corporations in exchange for favourable deals.
“Extravagances, such as lavish banquets, first-class flights and constructing luxurious office buildings, have been essentially curbed,” said Jefferies Christie Ju in a note to clients earlier this month.
Ju noted that the market for luxury goods climbed by just 2% in 2013 relative to the 13% jump in overall retail sales.
While this has been bad news for luxury goods products and services providers, the rest of corporate China is finding themselves better off.
“Thanks to strong implementation of anti-corruption efforts, almost all of the listed companies in our coverage universe have achieved cost savings in their business operations,” said Ju. “We expect Chinese companies to report higher-than-expected 2013 and 2014 core earnings. Lower SG&A should lead to improved margin and profitability, and stronger cash flow and balance sheet, as well as more dividends to shareholders.”
Ju expects Chinese stocks to outperform the markets.