Recent market research conducted by Goldman Sachs in Europe regarding China's Consumer Essentials Industry shows that offshore investors are hopeful about the sustainability of China's consumer recovery, closely monitoring policy stimuli, changes in consumption patterns, and emerging trends.

Investor sentiment, especially among EM (Emerging Markets) funds that are underweight in the Chinese market, is gradually turning optimistic, beginning to increase Shareholding in Chinese consumer stocks.

Goldman Sachs believes that Chinese consumer sentiment has stabilized, and the earnings cycle may see a valuation reset, suggesting that investors pay attention to specific sub-sectors such as Dining, Dairy Product, Pet Food, high-end Baijiu(Chinese Liquor), and Beer. For investors, this means that there are potential investment opportunities within the Chinese consumer Sector, especially in sub-markets that are reasonably valued and have growth potential.

Market sentiment: EM funds turn optimistic, increasing Shareholding in Chinese consumer stocks.

Goldman Sachs points out that EM funds in Europe are becoming more optimistic about the Chinese market, seeking to increase Shareholding in Chinese consumer stocks from their current low positions. Since January 2025, bulls have been increasing their positions in essential consumer goods, including Mengniu, Budweiser, and Master Kong.

Goldman Sachs believes that this reflects the relatively low allocation of China in Global mutual funds (only in the 8th percentile in January), with value-type LO (Long-term bullish) funds mainly seeking underperformers and major beneficiaries of policy stimuli, while more active funds are looking for new investment symbols in the market.

In short, overseas investors, especially EM funds, are gradually becoming bullish on and increasing Shareholding in Chinese consumer stocks, bringing incremental funds to the market.

Policy focus: expectations for more stimulus measures to boost consumer demand.

Goldman Sachs found that policy remains a highly concerned topic, and investors generally tend to believe that China's economy and consumption will gradually recover. They anticipate more policy actions that will provide upside potential in the future, hoping to see specific consumer stimulus measures, including consumption vouchers, new birth/child-rearing subsidies, and increase the disposable income levels of low-income groups. These policy expectations stem from this year's Two Sessions, which listed the recovery of domestic consumer demand as one of the top priorities.
Although China's Consumer Confidence Index has stabilized over the past few months, and real estate prices have also rebounded since December (indicating a weakening of negative wealth effects), investors are still closely monitoring whether future demand will show a more significant recovery.
Goldman Sachs pointed out that the Consumer Confidence Index improved slightly in January, providing bullish signals for the recovery of consumption. However, the strength of the recovery still needs to be observed, as investors focus on substantial improvements on the demand side.

Profit cycle: valuation reshaping is expected, focus on improving competitive landscape.

For essential consumer goods, Goldman Sachs anticipates that with Dairy Product and Beer entering a low base period beginning in the second quarter of 2025, shipment volumes will experience a cyclical rebound, though current sales and retail volume demand remain relatively weak. However, despite soft CPI, promotional/price competition in the beverage and Dairy Product industry is gradually easing.

Although demand has not yet rebounded, Goldman Sachs noted that early signs of profit recovery have appeared in some sub-industries, such as Dairy Product, Beer, and Dining, thanks mainly to positive corporate control of costs and operation expenditures. Additionally, a stricter capital expenditure cycle from 2024 to 2026 will lead to improvements in supply-demand dynamics, a more rational competitive landscape, and greater profit visibility.

Goldman Sachs believes that after the recent round of revaluation of Chinese Technology stocks, the Consumer Essentials Sector still lags behind and may see capital rotation.

Editor/rice