THIS MATERIAL IS A MARKETING COMMUNICATION.
Theme Review and Outlook: China Consumption
China’s consumption was weak due to the pandemic in the first half of 2022. Consumption initially showed a decent recovery in the first two months of the year until the resurgence of Omicron in March. Retail sales slowed sharply and was down 11.1% year-on-year (yoy) in April with the lockdown of key cities. The situation improved sequentially in May (-6.7% yoy) and is expected to see further improvements in June with an earlier-than-expected reopening. E-commerce was also impacted in April during the lockdowns due to supply chain and logistics disruptions. Total online physical retail sales declined by 5% yoy in April but improved in May to +7% yoy.1 The 618 shopping festival sales turned out better than the market expected, with the gross merchandise value (GMV) on all platforms growing +20% yoy, according to data from Syntun.2 While the dynamic zero Covid policy will stay for a while, it is unlikely that there will be another citywide lockdown as in Shanghai earlier this year.
Consumer staples were more defensive than discretionary and service sectors amid lockdowns in 1H22. Premiumization is still the mainstream trend across different categories, albeit the weak consumer confidence. At the same time, local brands continued to gain consumer attraction this year in various consumer sectors such as sportswear, cosmetics, and electric vehicles. We expect to see gradual consumption recovery, particularly in consumer discretionary and the services industry, in the latter half of this year.
Premiumization remains mainstream
Despite weak consumption, the premiumization trend remains the mainstream in China as affluent consumers are generally under less financial pressure than the lower class. Across different categories, the premium segment has been growing faster than the value segment. For example, China Resources Beer expects its premium portfolio volume to deliver double-digit growth, outperforming its overall volume growth in the first half of this year.3 A similar trend has been seen in the home appliance industry as well. As one of the largest home appliance platforms, JD saw high-end appliances sales surging nearly five folds compared to a year ago during the 618 festival, but overall sales growth was only 10% yoy during the same period.4 In addition, super premium spirits continued to show resilient demand, with Kweichow Moutai’s sales and profit growing 18% yoy and 24% yoy, respectively, in 1Q22.5 The company’s management guided revenue growth of 15% yoy for the full year in FY226, and so far, sales have been trending better than the guidance.
Local brands keep gaining consumer attraction
“Guochao(国潮)” has been a strong theme since last year, particularly in the sportswear industry after the Xinjiang cotton issue. Sales of Li Ning and Anta grew faster than international brands like Nike and Adidas. While overall sportswear sales were impacted amid lockdowns in 2Q22, local brands were generally more defensive and kept gaining consumer attraction. In addition, there are rising local brands in cosmetics, albeit most are still in the mass market segment rather than premium. For example, Proya, which ranked no.1 among Chinese cosmetics brands on Tmall during the 618 festival, has continued to beat market expectations this year with +39% yoy sales growth in 1Q22.7 According to Morgan Stanley estimates, the company maintained such growth in 2Q22 despite the Covid disruptions, and is expected to deliver +30-35% yoy sales growth in 2Q22.8 The company’s core Proya brand ranked no.5 among total cosmetics on Tmall, with a GMV growth of 133% yoy during the 618 festival.9
Additionally, local brands are gaining a greater share of China’s electric vehicle (EV) market. EV sales of BYD, GAC AION, Geely, and new startups have grown multiple times compared to a year ago in the first five months of 2022, despite the lockdown in Shanghai and price hikes at the beginning of the year. For example, BYD’s passenger EV sales grew 260% yoy in May.10 Overall, EV sales are expected to be resilient with rising EV penetration in China on the back of the government’s policy support as well as surging oil prices.
Outlook for 2H22
We expect China’s overall consumption to have a gradual recovery in the second half of this year. April was likely to be the bottom with citywide lockdowns, which we do not expect to happen again, albeit the zero-Covid policy is to stay for a while. Consumption slowed down in 2H21 due to the resurgence of Delta, and thus the base was low. More importantly, China will likely focus more on economic growth, especially after the 20th Party Congress in October/November and may announce more meaningful stimulus policies to boost domestic consumption. Overall, we are more positive on leading local consumer brands, particularly discretionary and services companies severely impacted by the zero-Covid policy in the past year.
Staying Ahead with Mirae Asset’s Latest Insights
1. NBS, May, June, 2022
2. Syntun, JP Morgan, June 21, 2022
3. Company data, June, 2022
4. Company data, June 19, 2022
5. Company data, April 29, 2022
6. Company data, April 29, 2022
7. Company data, April 28, 2022
8. Morgan Stanley, June 9, 2022
9. JP Morgan, June 21, 2022
10. CPCA, Citi, June 2022
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: It is intended is for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Singapore: It is not intended for general public distribution. The investment is designed for Institutional investors and/or Accredited Investors as defined under the Securities and Futures Act of Singapore. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Monetary Authority of Singapore. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Australia: The information contained in this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempted from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. The contents of this document is prepared by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission.
Swiss investors: This document is intended for Professional Investors only. This is an advertising document. The Swiss Representative is 1741 Fund Solutions AG, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent is Tellco AG, Bahnhofstrasse 4, CH-6431 Schwyz. The Prospectus and the Supplements of the Funds, the KIIDs, the Memorandum and Articles of Association as well as the annual and interim reports of the Company are available free of charge from the Swiss Representative.
UK investors: This document is intended for Professional Investors only. The Company is a Luxembourg registered UCITS, recognised in the UK under section 264 of the Financial Services and Markets Act 2000. Compensation from the UK Financial Services Compensation Scheme will not be available in respect of the Fund. The taxation position affecting UK investors is outlined in the Prospectus. This document has been approved for issue in the United Kingdom by Mirae Asset Global Investments (UK) Ltd, a company incorporated in England & Wales with registered number 06044802, and having its registered office at 4th Floor, 4-6 Royal Exchange Buildings, London EC3V 3NL, United Kingdom. Mirae Asset Global Investments (UK) Ltd. is authorised and regulated by the Financial Conduct Authority with firm reference number 467535.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.