Sentiment Of Upper Income Consumers In China Surges In May

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 |  Includes: GXC
by: David Riedel

China Consumer Sentiment Flat in May But Some Positive Signs
- China Shares Looks Set to Rally

  • In May the China Consumer Sentiment Indicator [CSI] increased slightly and continued to fluctuate tightly around the historical average of 95 where it has been for the past six months.
  • Despite this we continue to expect the CSI to increase strongly over the next few months. In line with our expectations the CSI of the upper income subgroup increased strongly in May. The CSI for the lower income subgroup fell to the lowest level in survey history - likely concern on Europe and/or rising food prices.
  • In line with the early stages of a recovery in Global Consumer Sentiment Chinese export growth picked up in April, increasing by 14.6% YoY. We expect growth rates to reach levels around 27% YoY by August 2013.
  • Due to increasing domestic demand we expect industrial production to increase to growth rates around 15% YoY by September 2013. In April industrial production increased 9.3%.
  • We continue to recommend increasing exposure to industrial stocks.
  • We expect the upward trend in inflation that started in November 2012 to continue.
  • Employment Expectations surged by 6 points in May to reach a level of 116.3. We expect the indicator to fluctuate around high levels of 113 through November 2013.
  • We expect Chinese consumer/shopping companies to benefit from strong Employment Expectations through November 2013 and urge investors to take advantage of the recent weakness in share prices in this sector, which seem unjustified given the high level of employment expectations.
  • We recommend building exposure to industrial names and consumer names in Hong Kong that are at historically low valuations.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.