Portfolio | Bump ahead for China's luxury carmaker stocks as economy slows

A dip in demand for high-end luxury vehicles following the recent mainland market rout is prompting analysts to cut estimates for the earnings and profitability of domestic carmakers.

“Cancellation of purchase orders by potential buyers in the last week of June when the A-share market corrected was one of the major factors of weak auto sales in the second quarter of this year,” Barclays equity analyst Song Yang wrote in report to clients.

The benchmark Shanghai and Shenzhen indices have retreated by more than 20 per cent from their June 12 peaks, with turnover on the two bourses sliding from bull-run levels.

In the report, Song, however, said the real problem behind slowing auto sales was more related to the wider economic conditions than the stock market. “There is a strong correlation between passenger vehicle sales and power consumption growth, which we view as a good indicator of underlying economic activity,” he said. “The correlation between these two variables is 83 per cent.”

The China Association of Automobile Manufacturers said June passenger-car sales fell 3.4 per cent year on year, marking the third month of year-on-year decline since September 2012.

The mainland’s gross domestic product expanded 7 per cent year on year in the three months to June, according to government data, unchanged from the first thee months of the year and beating the market consensus of 6.8 per cent.

Thanks to a battery of government measures to boost domestic consumption, retail sales grew 10.4 per cent year on year to 14.16 trillion yuan in the first half of 2015. In June alone, retail sales went up 10.6 per cent, accelerating by half a percentage point from May, even though the stock market see-sawed.