The Beijing authorities are fully committed to developing the artificial intelligence (AI) industry, and Chinese consumer stocks such as Kweichow Moutai are falling into a "lost decade."
"Bloomberg" reported that under the shadow of the Beijing authorities' efforts to develop artificial intelligence, China's consumer stocks are falling into a "lost decade."
China's consumer industry is in stark contrast to its booming technology industry. MSCI China's consumer goods sub-index has plummeted about 18% in the past six months, approaching a 10-year low; at the same time, the AI-centered technology stock index has soared and is now more than double the 2016 level. In the latest earnings season, consumer staples companies in MSCI's index posted profits nearly 50% below market expectations.
The downturn in consumer staples stocks reflects China's unbalanced economic structure. Driven by the Beijing authorities' full pursuit of technological hegemony, although it has driven an export boom and poured funds into AI companies, its effect on boosting domestic demand has been quite limited. China's retail sales increased only slightly by 0.4% in August, and there are few signs that investors' pessimism about the industry will ease after the National Day Golden Week, a critical period for tourism and consumption.
Chen Shi, fund manager of Shanghai Qianpu Investment Management Company, said: "This summer's data has refuted the claim that consumption is recovering, and confirmed that the economy can still only bet solely on exports. From a market perspective, this has had a crowding out effect. Investors have become increasingly betting on AI-benefiting stocks, while consumption and other sectors have been sold off indiscriminately."
This depressed mood is a sharp reversal from the scene in the years before the COVID-19 epidemic, when the rise of China's middle class was hailed as one of the world's most high-profile economic growth stories.
However, that optimism has long evaporated as the housing market continues to slump, income growth stagnates, and consumer confidence is in crisis, making investments in the consumer goods industry doomed to lose money. Although the Beijing authorities have introduced trickle-down policy support in recent years to revive real estate sales, the effect is still not as good as expected. The latest data shows that the decline in real estate prices continues to expand.
Data compiled by Bloomberg show that in the latest quarterly financial reports, the profits of consumer staples companies in the MSCI China Index were 47% lower than expected, while the profits of consumer discretionary companies were also about 10% lower than expected. For example, Kweichow Moutai, one of the bellwethers of China's economy, saw its net profit fall by about 2% in the first half of this year, the first time since 2014. The company's stock price has plummeted 10.2% so far this year. In contrast, financial reports from industrial and technology companies brought unexpected growth.
Wu Xinyi, head of equity strategy for Asia Pacific at Bank of America, said that the industry's plight is occurring in a global context. Currently, investors are avoiding consumer stocks and turning to beneficiaries of the AI boom. As far as China is concerned, bad news about domestic policies, including stricter tax enforcement, has also brought a heavier financial burden to households and businesses.
