Chinese economy stays challenged but some consumer stocks offer potential: BOA
[SINGAPORE] While headwinds persist for the Chinese economy and consumer confidence stays low, a select range of stocks could defy broader market trends and outperform their peers, said the Bank of America (BOA).
Despite improved market sentiment, the Chinese economy remains saddled by challenged consumption growth and elevated youth unemployment alongside deflationary pressures, BOA analysts noted in a report last Thursday (May 29).
However, stocks related to five themes could benefit from Chinese consumer spending, the BOA analysts said.
Specifically, these are stocks that focus on the categories of health and wellness; affordable luxury; pragmatic goods and services; personal experiences and emotional value; as well as intellectual property.
These 'new consumption' stocks display 'significant divergence in performance' amid softer market trends and sharply outperformed their peers in earnings growth and share prices, BOA analysts said.
With clear value propositions – be it emotional value, functionality or affordability – these stocks are favoured over large-cap premium brands or market proxy players, they added.
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Energy drinks, outdoor brands win on post-pandemic health, wellness focus
An increased interest in health and wellness among Chinese consumers post Covid-19, has benefitted stocks focusing on these themes, BOA said.
In the beverage market, energy drinks and soft drinks that focus on health and anxiety alleviation logged stronger sales growth compared to liquor or beer, the analysts noted.
Outdoor brands including Amer Sports enjoyed nearly 40 per cent year-on-year growth compared to the overall domestic sportswear market, which logged sales growth only in the single-digit percentages.
Online healthcare experienced 'rapid growth' fuelled by rising demand for proactive and preventive health management, and the increasing penetration of online drug purchasing.
Affordable luxury gains amid deflationary environment
Consumers tend to be price sensitive in deflationary environments.
Within the passenger vehicle market, domestic brands nearly doubled their market share from 33 per cent in 2020 to 65 per cent in the first four months of 2025, thanks to better price-performance than European and Japanese brands, the report said.
With improved product offerings, local brands in the smartphone market such as Xiaomi and Huawei have taken market share away from Apple.
This trend towards affordability is reflected in travel, where short-haul and domestic trips via railways and budget airlines have been on the rise; and domestic, 'affordable luxury' hotel chains have wrestled market share away from global five-star hotels.
Policy stimulus, subsidies boost demand for pragmatic items
The analysts also observed an increased focus on the utility and functionality over brand names among consumers.
Boosted by policy stimulus, sales for home appliances, furniture and consumer electronics rose by 20 to 25 per cent year-on-year for the first four months of 2025, outpacing overall retail sales growth, they noted.
Mass market brands such as Geely, Leapmotor and XPeng are expected to outperform premium/luxury brands including Zeekr, Li Auto and Nio.
Consumer willingness to spend on experiences
The analysts noted that consumers are willing to invest time and money in experiences.
Consumers are travelling more albeit spending less and treating themselves to 'small delights' such as new snacks, online games, cosmetics and pets.
Companies such as Tencent and NetEase posted gaming revenue growth for Q1 2025. Meanwhile, Chinese snackmaker Yankershop reported 76 per cent year-on-year growth in 2024, significantly higher than that of the overall snack industry, thanks to its innovative konjac products.
Co-branded products get boost from consumer spend on intellectual property
BOA analysts highlighted that consumer spending on intellectual property-related goods and services – such as Labubu toys or domestic movies like Ne Zha – drives up sales for co-branded products.
For instance, Pop Mart's retail sales rose by 165 to 170 per cent for Q1 of 2025, with China sales up by 95 to 100 per cent.
The success of the animated movie Ne Zha 2, which contributed to around 60 per cent of China's Q1 2025 box office, also drove sales of co-branded products such as milk, teas and toys.
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