China’s consumer stocks face lost decade
China's consumer stocks are facing a lost decade as Beijing prioritizes artificial intelligence. MSCI China's consumer goods sub-indices plunged roughly 18 percent over the past six months. This contrasts sharply with the AI-heavy technology gauge, which has more than doubled since 2016. Consumer staples firms in the MSCI gauge missed profit expectations by nearly 50 percent during the latest earnings season.
Beijing's focus on AI and an export-driven economy is actively crowding out domestic consumption. This is not a passive market shift. Shanghai Jade Stone Investment Management Co fund manager Chen Shi notes a "crowding-out effect" where investors concentrate in AI beneficiaries. This policy choice directly impacts consumer spending, which only crept up 0.4 percent last month.
The consumer sector's decline reflects a lopsided economy. Chinese authorities could stabilize asset prices and boost wage growth to rebuild confidence. However, the current policy aversion to aggressive stimulus means this will be a gradual process. Kweichow Moutai Co's first-half net profit drop shows even top brands are feeling the pressure.
The test for China's economic rebalancing is whether Beijing will shift capital back to domestic demand. Without policy changes to support consumer confidence and income, the current trend will continue. The "deep adjustment" described by Shede Spirits Co will persist, making a consumer recovery unlikely in the near term.
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