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Nikkei Markets

Chinese auto stocks surge on Geely’s sales amid skepticism

January sales increase might be due to short-term adjustments, says analyst

Geely reported better-than-expected sales, driven by higher sales of new energy and electric vehicles and exports. (Getty Images)

HONG KONG (Nikkei Markets) -- Shares of Chinese automobile companies jumped on Tuesday after major carmaker Geely Automobile Holdings reported better-than-expected January sales, although analysts remain wary of the demand outlook for the full year.

Geely late on Monday reported a 2% increase in overall sales in January, driven by higher sales of new energy and electric vehicles and exports, even as the company’s China sales declined 2%. Last month, Morgan Stanley had predicted Geely’s monthly sales could decline as much as 30% in the face of high inventories for both its Geely and Lynk & Co. branded vehicles.

Geely’s shares jumped 4.9% to HK$14.42 as of 2:45 p.m. in Hong Kong following the unexpected increase, also aiding other shares in the sector. Great Wall Motor gained 3.3%, Guangzhou Automobile Group increased 3.9% and BAIC Motor edged up 0.6%. The city’s benchmark Hang Seng Index was up less than 0.1%.

The advance extends a strong run for the auto sector following a downbeat 2018, when the aforementioned stocks slumped at least 40%. Analysts, however, remain skeptical the data signals a revival in demand after the industry entered 2019 with high inventory pile-ups with dealers.

The increase in January sales “is just the result of some short-term adjustments, including on the inventory,” said Zhuang Dan, an analyst at RHB Securities. “It is not because Geely itself has seen some huge growth. In the long term, we can see some pressure on car sales growth.”

Geely had last month predicted flat sales for this year following a 20% jump in 2018.

The January sales expansion at Geely, whose parent group also owns the Volvo and Proton brands, has come against the backdrop of a slowdown in the world’s largest automobile market that last year contracted for the first time in more than two decades. Auto sales including passenger and commercial vehicles fell 2.8% to 28 million units in 2018, according to data from the China Association of Automobile Manufacturers, or CAAM.

The Sino-American trade war and the government’s withdrawal of certain tax incentives have also helped contribute to a weakened consumer sentiment.

China’s top planning agency National Development & Reform Commission had last month announced a raft of measures, including the loosening of curbs on second-hand auto market, subsidies for rural consumers and purchasers of electric vehicles.

Still, those policies were unlikely to have much positive impact on the industry, given that car ownership levels were now much higher than they were a few years earlier, according to Cynthia Tam, a research analyst at CASH Financial Services Group.

-- Benny Kung

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