China slowdown? Depends on where you look

Thu Jul 23, 2015 4:59pm EDT
 
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By Chuck Mikolajczak and Lewis Krauskopf

NEW YORK (Reuters) - Many U.S. consumer companies are brushing aside worries that China's weakening economy and sputtering stock market will dramatically damage their bottom lines even with early trouble signs in recent earnings reports.

Most notably, companies dependent on Chinese infrastructure growth, such as United Technologies Corp (UTX.N: Quote) and Caterpillar Inc (CAT.N: Quote), are claiming soft second-quarter earnings and a downgraded outlook based on weakened Chinese demand.

Consumer companies like United Continental Holdings Inc (UAL.N: Quote), Apple Inc (AAPL.O: Quote) and General Motors Co (GM.N: Quote), on the other hand, continue to paint a rosy picture based on continued strong demand by the Chinese consumer.

The Chinese economy has faced difficulties this year as decelerating growth in factory output, retail sales and domestic investment has been compounded by a slowing property market.

China's economy is expected to expand 7 percent this year, with growth slowing to 6.7 percent in 2016, a Reuters poll of analysts showed on Thursday.

"We have been worried about it," Steve Weeple, head of global equities at global asset manager Standard Life Investments in Boston, told Reuters. "We would certainly not be surprised to see some of the big consumer packaged goods companies, some of the industrials, reporting that China activity is probably a little below headline growth rates."

Furthermore, a 30 percent early summer selloff in the Chinese stock market could hit companies more broadly in the third quarter.

Names that have a reliance on infrastructure growth in China have been hit the hardest so far this quarter. United Technologies fell 7 percent on Tuesday, its worst drop in nearly 4 years, after cutting its full-year profit outlook, in part due to slowness in its elevators business in China as the nation's housing market cools.   Continued...

 
Investors look at computer screens in front of an electronic board showing stock information at a brokerage house in Shanghai, China, July 14, 2015. REUTERS/Aly Song