Investors Shrug Off China’s Slump, Count On Consumers to Spend, Spend, Spend

Chinese alcohol, sportswear, travel and home-appliance stocks have scaled record highs, reflecting rising confidence about the outlook for consumer spending in the world’s second-biggest economy.

The situation echoes patterns seen in both U.S. and European markets, where, despite worries about slowing growth, consumer stocks are among the best performers. As of Tuesday’s close, the S&P 500’s consumer discretionary index was up nearly 25% this year, against a 21% rise for the main index. In dollar terms, the equivalent MSCI Europe sector index is up 17%, against a broader market rise of 11%.

Still, the rally in China is striking given broader concerns about the country’s slowing economic growth, trade tensions and a rapid run-up in corporate debt. Chinese and U.S. negotiators resumed trade talks on Wednesday after weeks of recriminations.

Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Asset Management, said many companies had grown in experience, established strong brands and begun generating strong cash flows after earlier phases of heavy investment. “I’m a big fan of China’s consumer sector,’’ Mr. Kwong said, pointing to drinks, sportswear, travel and instant-noodle companies.

The market gains span companies providing goods considered staples, such as food and drink, and those specializing in discretionary items such as refrigerators or holidays, and are partly a reversal of a steep selloff last year.

Consuming Passions

The biggest gainers among providers of consumer discretionary and staple goods in China’s CSI 300 index.

Share price gains, year-to-date

Shanxi Xinghuacun Fen Wine

Shares in Shanghai-listed Kweichow Moutai Co., a distiller of the potent Chinese spirit baijiu, have risen 67% this year. Stock in several of the company’s smaller rivals, such as Wuliangye Yibin Co., has more than doubled.

China International Travel Service

, the nation’s biggest travel agent, has risen more than 50%.

These and other mainland stocks, such as

Foshan Haitian Flavouring and Food

Ltd., air-conditioner maker Gree Electric Appliances Inc. and cookware specialist Zhejiang Supor Co. have all hit records in 2019. In New York, e-commerce behemoth Alibaba has risen 27%. Like U.S. rival, it is considered a consumer-discretionary stock by major index providers.

Louis Lau, director of investments at Brandes Investment Partners, said many makers of baijiu had shown solid growth in sales and profit, with healthy consumer demand helping them to push through price increases. Kweichow Moutai is the largest of these liquor makers.

The gains also contrast with signs of weakness in other parts of the consumer economy. These include falling car sales, declining imports, a slackening housing market, and even some public anxiety about the affordability of small luxuries.

Cars and houses are big-ticket items, making them more sensitive to even small shifts in consumer confidence and more dependent on the cost and availability of credit. That has made these markets more exposed to Beijing’s efforts in recent years to rein in the country’s big shadow-banking sector. Auto sales have slumped for 12 straight months, partly dented by market saturation in major urban centers and a credit crunch in smaller cities.

Gree Electric Appliances’ air conditioners on display at the company’s showroom in Zhuhai. Shares of the company have hit a record high this year.


Justin Chin/Bloomberg News

Some money managers say consumer stocks have also benefited as investors switched money out of other sectors, like technology hardware, that are more exposed to U.S. import tariffs and other forms of trade friction.

Sungho Im, chief executive at asset-management firm IM Capital Partners Ltd, said consumer-goods companies were likely to deliver more sustainable growth than corporations in industries that faced bigger trade or regulatory headaches, and so foreign investors had shown a preference for Chinese spirits, food and travel companies.

“Many investors have started to believe that the Chinese government will boost domestic consumption to make up [for] any negative impact from the trade dispute, too,” he added.

In Hong Kong, makers of sneakers and sportswear have benefited. Shares of

Li Ning

, a sportswear brand named after its founder, a celebrated Chinese gymnast, have more than doubled this year to reach a more than eight-year high. Rival Anta Sports Products Ltd. has logged records, despite a series of skeptical reports by researchers and short sellers.

However, Mr. Lau at Brandes said the rally had pushed up stocks to rich valuations, meaning share prices have increased as a multiple of earnings and other measures. He said his firm was now adding to its positions in other sectors such as banking, energy, health care and technology.

China’s leaders have long aimed to reorient the economy from investment- and export-driven growth to serving a vast domestic population that is becoming richer and more free-spending. The gains are effectively a vote of confidence from the market in this project.

“A growing affluent middle class with higher disposable income will likely benefit companies which have the capability to serve their needs and offer more innovative services,” said Wenchang Ma, a Hong Kong-based fund manager at Investec Asset Management Hong Kong Ltd.

China’s household disposable income per capita stood at $5,897 in 2018, roughly one-eighth of the U.S.’s $46,322, according to Euromonitor International. However, the market-research firm forecasts the Chinese figure will grow by nearly a third to $7,799 by 2023, whereas the U.S. equivalent will grow just 6.5%. The figures are measured in constant 2018 prices.

Write to Joanne Chiu at

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