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Chinese consumer stocks have fallen close to decade lows as weak household spending and surging investor interest in artificial intelligence widen the divide between China’s consumer and technology sectors, Bloomberg reported.
MSCI China’s consumer goods sub-indexes have declined about 18% over the past six months, pushing them near their lowest levels in roughly 10 years. In contrast, the technology index, which has significant exposure to AI-related companies, has climbed to more than double its 2016 level.
The divergence reflects an increasingly uneven Chinese economy. Beijing’s drive to develop advanced technology and artificial intelligence has supported exports and attracted investment, but those gains have done little to strengthen domestic consumption.
China’s retail sales rose just 0.4% in August, while a prolonged property downturn, sluggish income growth and weak consumer confidence continue to limit household spending.
Corporate earnings have reinforced those concerns. Consumer staples companies in the MSCI China index missed profit expectations by 47% during the latest earnings season, according to Bloomberg data. Consumer discretionary firms undershot forecasts by nearly 10%. Technology and industrial companies, meanwhile, reported earnings above expectations.
Investors have increasingly responded by rotating into Chinese AI and technology stocks. Some actively managed funds that previously focused heavily on consumer companies have raised their technology exposure, while inflows into technology exchange-traded funds have increasingly outpaced those targeting consumer shares.
The selloff has made Chinese consumer stocks considerably cheaper. MSCI China’s consumer discretionary index trades at about 11 times forward earnings, compared with roughly 13 times for consumer staples and 21 times for information technology.
Lower valuations and light investor positioning could create opportunities for consumer shares during periods of technology-market volatility, similar to the brief rotation seen during July’s global tech selloff.
However, a lasting rebound in Chinese consumer stocks will likely depend on stronger domestic demand. Recent measures aimed at supporting the housing market have yet to reverse declining property prices, leaving household confidence and consumer spending under continued pressure.
