Sector posting most extreme readings on key metrics (UBS Evidence Lab China CFO survey 6th wave)
Weaker outlook: orders; pricing; margins; and competition
We highlight key findings from UBS Evidence Lab's 6th China CFO Survey (of 542 Chinese firms) conducted over 5-20 March 2020. 1) 90% of respondents reported a negative impact from COVID-19, and 83% believed a recovery later in 2020 would be insufficient to offset losses incurred. 2) The top-line outlook weakened further with 38% of respondents anticipating "somewhat or significant decrease" in sales for the next six months vs 9-10% between July 2017 and April 2019 and 13% in September 2019. Expectations for exports and domestic new orders, prices and profit margins are all weaker. 3) Small companies were more affected by the outbreak: 42%/49% of small firms with less than Rmb1bn in revenue expected sales/margin to fall vs. 38%/ 46% for all respondents. 4) Weak demand and possible new foreign entries may ensure fierce competition. We reiterate rising industry concentration as a top investment theme for 2020.
Respondents plan to cut costs, slow capex and cut dividends
1) Travel & entertainment, non-core investment projects, and sales, advertising and distribution remained the top three areas for cuts in the next six months. 2) To cope with COVID-19, respondents will also target cutting or delaying capex, R&D and wages, and some respondents expect to cut dividends to preserve cash. 3) More respondents expect higher fund raising in H120. 4) SOEs reported a higher intention to hire staff than non-SOEs/foreign enterprises/JVs, indicating the former's greater counter-cyclical responsibility to help stabilise employment.
Respondents report some fiscal help, but limited credit easing help so far
1) Fewer respondents reported easier access to credit or cheaper credit than the September 2019 survey. 2) Large firms noted marginally more benefits than smaller firms. 3) Firms reported benefiting more from fiscal policies than credit policies.
Interim peak in May likely; possible downside to 2020E EPS later in Q2
UBS forecasts fiscal stimulus at 4% of China's GDP in 2020 vs 10% during GFC and 2% in 2016. There is both an upside case (fiscal stimulus at 6%) and a downside case (a deeper global recession). We anticipate Chinese equities to reach an interim peak in May on disclosure of more specific stimulus measures.