Clearly earnings growth didn't drive China's mammoth stock market rally

Photo by Mario Tama/Getty Images

Fundamentals were clearly not a factor in China’s recent stock market surge.

Overnight China’s Ministry of Finance revealed the profits of Chinese state-owned enterprises (SOEs) dipped to 1.2 trillion yuan ($201.5 billion) in the 12-months to June, a decrease of 0.1% from the previous corresponding period. Revenues were 5.8% year-on-year while operating costs fell 5.3% during the period.

Despite the continued decline it was a significant improvement on the 3.3% contraction seen in the five months to May, and the 21.5% annual drop in the first two months of 2015.

According to state-owned newspaper the People’s Daily, quoting the Ministry of Finance, SOEs in transport, chemicals, electronics and power generation sectors saw strong increases in profits while the coal mining, steel, petroleum and petrochemical industries posted notable profit drops. The non-ferrous metal industry reported a loss of 4.5 billion yuan in the first half.

While the profits of SOEs fell 0.1% in the year to June, China’s benchmark stock market index — the Shanghai Composite — laden with SOEs, rallied by a mere 109%.

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