China’s consumer sector is something of a defensive play, especially since it doesn’t get a lot of attention in the United States. (After all, it’s hardly as exciting as art auctions and expensive jewelry.) But DBS Group Research claims that the consumer sector provides “beauty of both sides.”
According to the somewhat poetic DBS analysts, consumer companies offer “better resilience during the harsh times as well as fruitful returns whenever skies clear again.”
More practically, the Chinese government favors rebalancing economic growth toward consumption. To that end, it is pursuing policies that increase the minimum wage, limit individual medical costs, accelerate urbanization with new transportation systems, and build millions of units of affordable housing.
The big trend lies in discretionaries. DBS Group sees the RMB continuing to appreciate, increasing the purchasing power of mainland consumers. High-end merchandise retailers will continue to spread into China’s provincial cities, and sustainable inflation will prompt demand for valuable assets, including gold and luxury watches. The home appliance industry will also benefit from energy savings subsidies introduced by the Chinese Government in 2011.
The DBS Group’s top picks include China Foods, China Resources, and Golden Eagle Retail Group. These companies are not available in the United States, but they can be found in the Global X China Consumer ETF (CHIQ, quote), which is currently trading a little above its 20-day simple moving average of $14.25.