Investors lose taste for Chinese consumer stocks

That gains have so far faded in 2022, as rising commodity prices—triggered by the war in Ukraine—threatening to eat into the profits of consumer-product makers, and fresh Covid-19 lockdowns in the world’s second-largest economy have helped some. has reduced the demand. Goods.

An S&P China consumer-staple index, which includes stocks of companies that produce alcohol, bottled water, dairy products, e-cigarettes and snacks, has fallen 20% so far in the year, with much of the decline coming from Russia. occurred after the attack. Ukraine at the end of February. The sector has underperformed the S&P’s broader China index, which has fallen 14% over the same period, and Internet giants such as Tencent Holdings Ltd and Alibaba Group Holding Ltd.

China Resources Beer (Holdings) Co., one of the country’s largest brewers, is down 24% this year, while bottled water and beverage giant Nongfu Spring Co. is down 17%. Even long-market darling Kweichow Moutai Co., which produces fiery Chinese sentiment Bajiu, is down 16%.

Shares of Want Want China Holdings Ltd, a maker of rice crackers and milk-based beverages, have outperformed as people stock up on essential items during the pandemic. Its shares are up slightly year over year.

“Many food and beverage companies are being squeezed,” said Min Chen, head of China at Somerset Capital Management in Singapore.

He said investors are more bearish on the outlook for companies that have not been able to pass on higher input costs, from materials to packaging materials, to customers who buy their products.

Nongfu Spring, which this week reported a 36% jump in 2021 gains equivalent to $1.1 billion, said the Russo-Ukraine war had caused a significant increase in the price of a plastic material known as PET, which is a major contributor to international oil. associated with prices.

William Yuen, Hong Kong-based investment director at Invesco, said consumer staples previously offered a relatively safe haven for investors in Chinese equities, driven by heavy sell-offs in Internet-technology and property stocks.

Goods and services related to socialization and entertainment such as beer and other liquor have also been affected, because of the latest efforts by China to stamp out the coronavirus outbreak, he said.

China’s fight with Omicron, which led to lockdowns and factory closures in many cities, further rocked the market in March. In Shanghai, a lockdown was planned in two phases this week – public transport halted and residents ordered to stay inside their residential premises.

China has proven efficient in conducting large-scale testing during the lockdown and then reopening, Mr Yuen said, citing the recent easing of measures in Shenzhen’s southern manufacturing hub after a strict lockdown was imposed. “So when we finally see that recovery comes, it will probably be much faster and stronger than most people anticipated,” he said.

Consumer categories in China can be defined somewhat arbitrarily. A bottle of Mutai can cost as much as hundreds of dollars, giving the eponymous wine giant more discretionary qualities. In early March Mutai said its net profit rose 20% in the first two months of 2022 to the equivalent of $1.6 billion from a year earlier.

Jessica T., a senior investment specialist for Asia Equities at BNP Paribas Asset Management, said investors should focus on companies that offer high-quality products, as a corporate focus can help those companies increase their market share. .

China Resources Beer last week reported flat beer-sales volume for 2021, but said it aimed to boost sales of higher-value products, which could help offset increases in raw material and packaging costs. Is.

Mr Chen of Somerset Capital said he remains positive on rising mass consumption in China. He favors companies that appeal to the younger generation, and that have the power to raise prices. “There’s still a long runway for consumer-facing businesses to grow,” he said.

This story has been published without modification to the text from a wire agency feed

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