March 27 (Bloomberg) -- China stock investors’ optimism over a rebound in growth is “overdone” and shareholders will endure “pain” as government measures to stimulate the economy fail to stem the slide in earnings, Morgan Stanley said.

Profits of companies on the CSI 300 Index, measuring so- called A shares listed in Shanghai and Shenzhen, will tumble an average 15.4 percent in 2009, Morgan Stanley analysts Jerry Lou, James Cao and Allen Gui wrote in a note today. Earnings for companies on Hong Kong’s Hang Seng China Enterprises Index will plunge 26.6 percent, they said.

“The poor-quality GDP growth, driven by policy stimulus, won’t make much difference to the earnings recession path in 2009,” they said. “Recent market optimism, triggered by early recovery of several macro indicators, we believe is overdone.”

Earnings fell 31 percent in the second half of 2008, compared with growth of 147 percent in the first half, according to the full-year results of 537 companies, the report said. Companies may report “deep investment losses” considering the domestic stock market tumbled in the second half of 2008, the analysts wrote.

China’s urban fixed-asset investment jumped 26.5 percent in the first two months from a year earlier, new lending quadrupled in February and vehicle sales rose 25 percent as the government implements a 4 trillion yuan ($585 billion) stimulus package.

Economic Recovery

People’s Bank of China Governor Zhou Xiaochuan said in an article on the central bank’s Web site that “leading indicators are pointing to recovery of economic growth.”

The Shanghai Composite Index has advanced 30 percent this year, the second best after Peru among 89 global stock gauges tracked by Bloomberg, on speculation the government’s stimulus package will help nation’s economy overcome the global recession.

Chinese industrial companies’ profits sank 37 percent in the first two months from a year earlier to 219.1 billion yuan, the statistics bureau said today. Profits expanded 16.5 percent in the same period last year.

“Even if the economy achieves the 8 percent GDP growth target set by the government, it will mean very little to corporate earnings growth,” according to Morgan Stanley.

To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

Last Updated: March 27, 2009 02:02 EDT