Bourses cheer consumption rise

Investors chase shares in food, appliance, hospitality, and entertainment companies

China's consumption upgrade is bringing glad tidings to the stock market as shares in related companies have been rising of late.

The uptrend is exemplified by Kweichou Moutai, a maker of baijiu, the iconic traditional Chinese liquor.

Its shares trade around 560 yuan ($84) in Shanghai now, up nearly 84 percent from 305 yuan a year ago.

For 52-year-old Shanghai-based baijiu-lover Han Zhiguo, that is both good news and bad news.

Good because consumption-related shares offer good investment opportunities these days.

And bad because a bottle of Kweichou Moutai's premium liquor costs much more than 600 yuan, or almost as much as a share in the company.

"Liquor price has been rising steadily along with share prices. Investors often joke that buying liquor shares is a good hedge against the rising price of liquor itself," Han said.

Not just retail investors such as Han, even domestic and overseas institutional investors love shares in consumer product companies such as Moutai.

That's because Chinese consumers are spending more than before to upgrade to better or quality products that they want to experience and enjoy, analysts said.

Often, that upgrade takes the form of demand for China-made products as focus shifts from overseas brands to domestic suppliers－the latter's reputation is improving, thanks to their innovative products.

According to National Bureau of Statistics data, consumption's share in China's economic growth grew from 47 percent in 2013 to 64.6 percent in 2016.

The consumption uptrend is expected to continue to expand its influence on social and economic development.

The week long break at the beginning of October is usually an indicator of consumer sentiment. This year's break showed that Chinese consumers are willing to spend more than in the past few years.

Overall revenue of retailers between Oct 1 and 8 was 1.5 trillion yuan, up 10.3 percent year-on-year, according Ministry of Commerce data.

Shares of companies that produce quality food, beverages, health products or home appliances, such as Midea and Yunnan Baiyao, are among the most popular stocks, according to transaction data of the Shanghai-Hong Kong stock connect program and the Shenzhen-Hong Kong stock connect program.

Shares in both Midea and Yunnan Baiyao attracted more than 2 billion yuan each from overseas investors so far this year.

Since September, companies across the food and beverage sectors rose an average 10 percent, while home appliance makers rose more than 6 percent, outperforming other sectors in the A-share market.

The benchmark Shanghai Composite Index rose nearly 1 percent in the same period.

Shares in baijiu makers Gujing Gongjiu and Shanxi Fenjiu, and retailer Yonghui Supermarkets, rose more than 20 percent during the period.

According to a research note from Hua Chuang Securities, consumption-related companies are more "defensive" because they are more able to withstand cyclical pressures than many other fragile sectors that are sensitive to external factors.

The Hua Chuang note said that demographic changes, like increasing number of residents holding more disposable income, would mean consumption is going to expand in terms of not only quantity but quality.

"Added value of these companies, net profit and returns on shares will grow for companies offering quality products," it said.

According to Shenwan Hongyuan Securities data, net profit and ROE (rate of return on equities) of food and beverage, home appliance and healthcare companies have been increasing steadily since the beginning of this year, rising by an average 16 percent.

Consumption upgrade in China is not limited to products but covers experiences and services as well.

A research note from Shenwan Hongyuan Securities said reputable companies "in the leisure, hospitality and entertainment sectors are also likely to grow fast" if they grasp the opportunities brought by quality-conscious consumers.