The Chinese government is concentrating its policy efforts on artificial intelligence (AI) and advanced technology industries, leading to predictions that consumer stocks may enter a 'lost decade.'
On September 27, Bloomberg reported that while consumer stocks have struggled recently, technology stocks have surged, creating a stark contrast. The MSCI China Consumer Goods Index has fallen approximately 18% over the past six months, nearing its lowest level in a decade. In contrast, the technology index, heavily weighted with AI-related stocks, has more than doubled since 2016.
The poor performance of consumer stocks was evident in recent earnings reports. Companies in the essential consumer goods sector included in the MSCI China Index reported profits that fell about 47% short of market expectations. Earnings for cyclical consumer goods companies also missed forecasts by approximately 10%.
Kweichow Moutai, China's largest liquor producer and a representative consumer stock, saw its first-half profit decline by 1.95% compared to the same period last year. This marks the first decrease in Moutai's half-year profit since 2015.
While the Chinese economy continues to grow, driven by AI investment and advanced manufacturing exports, this growth has not translated into domestic consumption, exacerbating economic imbalances.
In fact, China's retail sales in August increased by only 0.4% year-on-year. As one of the peak consumption periods approaches with the National Day holiday, investor expectations for a recovery in consumer spending remain low.
Chen Si, a fund manager at Shanghai Chenfu Investment Management, noted to Bloomberg, "Investor funds are increasingly concentrated in AI beneficiaries, while other sectors, including consumer stocks, are being indiscriminately sold off."
The widening gap between consumer and technology stocks is also reflected in fund flows. According to Bloomberg, funds flowing into exchange-traded funds (ETFs) tracking technology stocks are increasingly outpacing those going into consumer goods ETFs.
Before the COVID-19 pandemic, consumer stocks in China were considered one of the most promising sectors amid expectations of a growing middle class. However, prolonged real estate stagnation, slowing income growth, and weakened consumer sentiment have left consumer stocks struggling.
Manager Chen emphasized that to restore consumer sentiment, measures such as stabilizing asset prices, raising wage expectations, and increasing minimum income levels are necessary. However, he predicted that it would take considerable time for consumption to recover meaningfully.
Moreover, the Chinese government has shown caution regarding large-scale stimulus measures to boost consumption, suggesting that the burden on consumer stocks is likely to persist for the foreseeable future.
Sen Meng, a representative of Xiangshun Capital, told Bloomberg, "In the context of prolonged economic slowdown, there is a lack of clear upward momentum to drive Chinese consumer stocks. Long-term, stronger growth opportunities are expected to emerge in the technology sector." He added that consumer stocks may be trapped between weak fundamentals and capital outflows.
* This article has been translated by AI.
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