By Yifan Wang
Shares of Chinese apparel maker Shenzhou International Group Holdings Ltd. rose sharply, rebounding from a six-session selloff.
The stock was recently 14% higher at 67.50 Hong Kong dollars (US$8.50), on track for its biggest one-day percentage gain since 2009.
Shenzhou's advance came as shares in Hong Kong rallied on Wednesday, catching up with Wall Street's strong gains over the past two days.
Analysts say Shenzhou's gains are likely temporary, after days of steep losses as the market priced in a weaker order outlook from clients and a potential global recession.
Improved investor sentiment in global equities, driven in part by the Reserve Bank of Australia's smaller-than-expected interest-rate increase on Tuesday, gave Shenzhou an extra boost.
Since the overall apparel sector's valuations have dropped to a bottom, "there could be a relatively strong rebound in the near term," KGI Securities analyst Jenny Liu says. "But in terms of order momentum and the industry's fundamentals, there is no substantial improvement."
Inventory levels at many clothing brands have risen in recent months, and companies are facing difficulties reducing their stockpile amid a slowing global economy and low consumer spending, she said. This means "order volume for suppliers would likely remain very weak into the fourth quarter and early next year," Ms. Liu said.
The weak quarterly results and high inventory levels of Nike Inc., Shenzhou's largest customer, dealt a further blow to the apparel supplier's earnings prospects.
Nike's worse-than-expected earnings and downbeat margin guidance led to a series of target-price cuts from investment banks and brokerage firms, including Citi and Bocom International.
Shenzhou could face shrinking profitability and potential order cuts, as the company "may share the margin pressure [of Nike] given the current excess inventory issue," Citi analysts said in a recent note.
Write to Yifan Wang at email@example.com
(END) Dow Jones Newswires