After three years of pandemic restrictions, the people of China have made a splash in the realms of dining, travel, and luxury goods. However, as the dust settles, it becomes apparent that routine consumer items are still awaiting their turn in the spotlight.
First-quarter corporate results cited by Reuters suggest that consumer caution, fueled by global growth concerns and job prospects, has dampened overall demand and confidence despite the broader economic recovery.
According to Bank of America Securities estimates, China’s A-shares experienced a 3.2 percent growth in earnings during the first quarter compared to the previous year, bouncing back from a 5.7 percent drop in the final quarter of 2022. The economy itself performed better than expected during this period, but the benefits to companies were far from uniform.
While restaurants and tourism businesses experienced a robust recovery, with earnings in the travel-related consumer services sector surging by 155 percent, the food-and-beverage sector saw a respectable 18 percent jump, and the automobile industry observed a more modest 8 percent increase.
On the other hand, home furnishings and apparel firms witnessed a decline of 9 percent in their earnings. The materials sector suffered the worst results, with earnings in steel and building materials tumbling over 60 percent.
Analysts aoptimistic about future prospects
Digging deeper into the sub-sectors reveals a clearer picture of the divergence in consumer behavior.
Major jewelry brands, such as Lao Feng Xiang and Chow Tai Seng, boasted double-digit growth in earnings. However, the leading cosmetics firm, Bloomage Biotechnology, saw a 17 percent decline in net profit due to lukewarm online sales.
Real estate, healthcare, and apparel also underperformed, while financials, consumer services, and utilities outshined with positive growth.
Norman Villamin, the group chief strategist at UBP, suggests that consumer confidence will be gradually restored over time. According to Villamin, consumers start slowly, but as the year progresses and they grow more comfortable, they gradually increase their spending.
Analysts are optimistic that the first quarter marked the low point for 2023, and full-year earnings are expected to reach double digits.
According to Refinitiv data, companies listed on the Shanghai Stock Exchange are forecasted to achieve a 26 percent growth in earnings for the year.
“Investors may look past the first-quarter results and focus on the momentum of earnings revision for the second quarter,” suggests Redmond Wong, the Greater China market strategist at Saxo Markets.
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