China’s SSE Composite Defies Profit Slump, Index Edges Higher

The SSE Composite Index (SHA: 000001) bucked negative economic data to close in positive territory. Despite a significant decline in Chinese industrial profits, the index managed a modest gain, highlighting the complex interplay between macroeconomic factors and market sentiment.

The index closed at 3,875.26, for a 0.29% increase on the day. This rise occurred despite the National Bureau of Statistics (NBS) reporting a 5.5% year-on-year drop in China's industrial profits for October, the largest decline since June. This downturn reversed the double-digit growth seen in August and September, raising concerns about the sustainability of the economic recovery.

The profit decline in October followed a 21.6% increase in September and a 20.4% rise in August, underscoring the volatility within the industrial sector. Cumulative profit growth for the first ten months of 2025 slowed to 1.9%, a decrease from the 3.2% recorded in the January-September period. Sector-specific performance varied widely, with the mining sector experiencing a substantial 27.8% plunge in profits over the ten-month period.

In contrast, the manufacturing sector saw a 7.7% increase in profits, while the utilities sector, which includes suppliers of electricity, heat, fuel, and water, experienced a 9.5% rise. Carmakers reported a 4.4% profit gain in the first ten months, up from a 3.4% increase in the first nine months of the year. Profits at state-owned enterprises (SOEs) remained flat, contrasting with a 3.5% gain for industrial firms with foreign investment and a 1.9% increase for private companies.

The NBS attributed the October profit decline to high-base effects from the previous year and rapid expansion in corporate spending. Further contributing to the negative sentiment, China's manufacturing activity contracted more than expected in October, with the official manufacturing purchasing managers' index (PMI) dropping to a six-month low of 49.0. A PMI below 50 indicates contraction, reflecting tepid consumer demand and broader economic challenges.

Trade tensions between China and the U.S. had escalated in October over export controls, with the U.S. threatening additional tariffs on Chinese imports. While a deal was eventually reached in South Korea, domestic challenges persisted.

Retail sales grew by 2.9% in October, marking the weakest growth in over a year. Fixed-asset investment shrank by 1.7% for the first ten months, a decline unseen since 2020 during the pandemic. Industrial output expanded by a smaller-than-expected 4.9%, and the urban unemployment rate remained elevated at 5.1% in October.

Chinese policymakers have signaled a shift towards boosting consumption over the next five years but have yet to implement significant stimulus measures. Economists widely expect Beijing to hold off on large-scale stimulus, as the economy is on track to meet its growth target of around 5% for the year.

The SSE Composite Index's gain, despite the profit decline and other economic headwinds, suggests that markets may be anticipating future policy support or viewing the current profit decline as a temporary setback. However, the underlying weakness in industrial profits and the broader economic challenges could temper market sentiment in the coming weeks.

The resilience of the stock market in the face of these indicators underscores the complex interaction between economic data, market expectations, and government policy. This divergence raises questions about the sustainability of the current market rally and the potential for future volatility.