BofA: China’s Retail Market Remains Compelling
China has emerged as a global powerhouse in the consumer market, securing its position as the world’s second-largest retail market with sales reaching an impressive $6.6 trillion in 2022, equivalent to 12% of the global market. From 2018 to 2023, China’s contribution to global growth reached a remarkable 21%, with exceptional performance in key sectors such as luxury goods, skincare, and sportswear. China’s dominance in various consumer categories is evident, with e-commerce accounting for 52%, infant formula for 43%, luxury goods for 30%, spirits for 29%, skincare for 27%, and travel retail for 20% of the global market share. Moreover, China not only excels as a major exporter but also holds the distinction of being the world’s third-largest importer of consumer goods.
The strength of China’s consumer market is underpinned by the burgeoning middle class, which is projected to expand from 400 million to 800 million by 2035. Furthermore, rural areas exhibit significant untapped consumption potential. Despite the challenges posed by an aging population, the upcoming retirement of the affluent demographic is expected to propel the “silver economy.” Concurrently, the population of the crucial 15-44 age bracket remains stable, ensuring a steady consumer base.
In the face of geopolitical tensions and supply chain disruptions, global companies are strategically adapting their business approaches in China. The focus has shifted towards localization to capitalize on the country’s efficient and integrated supply chains, enabling companies to navigate the complexities of the market effectively.
Although China’s consumer market recovery may be gradual and uneven, macroeconomic indicators and policy stimulus measures suggest a potential stabilization on the horizon. Current market valuations present an attractive opportunity for investors, with a barbell strategy recommended for investing in Chinese consumer stocks. Among the top picks are New Oriental Education & Technology Group (EDU), Shenzhou International, Anta Sports, Li Ning Company, Huazhou Group, and China Resources Beer. For global brands with significant exposure to the Chinese market, the recommended top picks include LVMH, Nike, Estee Lauder, and Carlsberg.
Reference: BofA, China Matters, #5: Sheer size of China consumer market attracts and fuels global companies, 5 June 2024
