Following a five-year underperformance cycle from 2021 to 2025, China's consumer sector is showing early signs of recovery at the start of 2026.
A recent research report from JPMorgan Chase points out that in the Year of the Horse, China's consumer industry stands at a critical juncture of "policy support and structural divergence." Multiple intertwined factors, including a mild recovery in end-demand, price deflation forcing consolidation, and evolving consumption trends, are driving the sector from overall sluggishness towards a landscape where structural opportunities are becoming prominent.
Within the global consumer market landscape, Chinese consumer stocks, with their valuation advantages and earnings resilience, now present an attractive risk-reward profile. The divergence among different sub-sectors and individual companies will become the core investment logic.
Industry Fundamentals: A Pressured Mild Recovery The current state of China's consumer industry is characterized by "weak demand recovery and profits awaiting repair." Data shows that in November 2025, total retail sales of consumer goods grew by a mere 1.3% year-on-year, with growth continuing to slow compared to the first three quarters, reflecting continued caution in household consumption willingness.
JPMorgan Chase forecasts that retail sales growth will maintain a mild pace of 2.6% and 2.5% in 2026 and 2027, respectively, against a backdrop of GDP growth slowing to 4.5% and 4.1%. Coupled with an overall unemployment rate around 5% and a youth unemployment rate of 14%-18%, the momentum for recovery on the demand side remains constrained.
The profit side also faces pressure. Among the 150 core consumer stocks tracked by JPMorgan Chase, earnings expectations for the third and fourth quarters of 2025 were revised down consecutively. The current market consensus expects industry sales and net profit to grow by only 3.7% and 8.8% year-on-year in 2025. If no further stimulus policies are implemented or the macroeconomic situation does not improve, earnings expectations could be revised down by another 2-3%, creating a gap with the "mid-single-digit to double-digit profit growth" targets disclosed by leading companies.
Policy support emerges as a potential upside factor. The report suggests that policies such as the extension of subsidies for appliance replacement, expansion of birth benefits, and strengthened support for consumer finance in 2026 are expected to gradually take effect. The home appliance industry, as a key area for subsidies, might be among the first to benefit from policy tailwinds, alleviating pressure from weak demand. However, it is important to note the diminishing marginal effects of policy, and its overall impact on sector-wide recovery should be viewed rationally.
Core Trend Iteration: Reshaping the Competitive Landscape Price Deflation and Accelerated Industry Consolidation Price deflation for consumer goods has become an undeniable feature of the industry. Looking at core categories, the wholesale price of Feitian Moutai dropped from 2,300 yuan at the start of 5 to a historic low of 1,499 yuan by year-end, a decline of over 60% from its 2021 peak. Traditional categories like apparel and catering are attracting customers through price cuts and promotions, while the home appliance industry employs a strategy of "functional upgrades without price increases" to maintain market share. Combined with the dual impact of e-commerce platforms and government subsidies, the overall price level in the industry continues to decline.
The deflationary cycle is further exacerbating industry divergence. Leading companies, leveraging refined cost control and the application of digital and AI technologies, are continuously capturing market share from smaller brands. Enterprises lacking scale advantages and supply chain capabilities will face accelerated exit. JPMorgan Chase judges that this trend will drive an increase in industry concentration, particularly in segments like freshly-made beverages, fast-food chains, and home appliances, where the competitive advantages of leading players will become more pronounced.
Evolving Consumer Behavior: Affordable Indulgence and Experience-Driven Spending Against the backdrop of consumption downgrading and reduced spending, consumption structures are showing significant divergence, with "affordable indulgence" becoming the core logic for younger consumer groups. While price sensitivity has increased, consumers are still willing to pay for emotional value, immediate experiences, and social attributes. Segments such as IP toys, freshly-made bubble tea, traditional craft gold jewelry, and beauty experience services are experiencing counter-trend growth.
The key to success in these segments lies in differentiated competition: Pop Mart has broken through the lifecycle limitations of a single IP by building a multi-IP matrix, with non-Labubu IPs like Twinkle Twinkle gaining traction rapidly, effectively hedging against volatility risks of core IPs; its current valuation of 19 times is attractive among quality IP companies.
Lao Pu Huang Jin has deeply cultivated the traditional craft gold segment, building a unique moat with intangible cultural heritage techniques and cultural value. Adopting a "fewer stores, larger stores" DTC model, its average store sales reached 459 million yuan in the first half of 2025. Its first overseas store in Singapore's Marina Bay Sands saw strong foot traffic, with 90% being new customers, many of whom were previously users of international jewelry brands, demonstrating its global competitiveness.
Mao Geping focuses on offline immersive services as its core, with over 2,800 professional beauty advisors across 409 counters nationwide, forming a unique service barrier. It maintains balanced development across online and offline channels, with online revenue growing 39% year-on-year in H1 2025. The growth rate of its skincare segment (33.4%) surpassed that of color cosmetics, indicating continuous optimization of its category structure. The report cautions that such segments need to be wary of risks from shifting fashion trends and fluctuations in consumer loyalty, where the continuous innovation capability of leading companies becomes the core moat.
Overseas Expansion and Demographic Reshaping Growth Logic To hedge against sluggish domestic growth, leading companies in sectors like home appliances, sportswear, IP derivatives, and freshly-made beverages are accelerating their overseas expansion. Overseas markets not only offer stronger demand and higher price acceptance but also feature more rational competition, providing a new growth engine for Chinese companies with scale advantages and supply chain capabilities. However, risks such as tariff changes, supply chain management, and local operations remain barriers, favoring companies like Anta Sports and Haier Smart Home, which possess mature overseas operational experience.
Population aging brings both challenges and opportunities. China's population decline continues, with the number of newborns dropping to 9.5 million in 2024 and the population aged 65 and above rising to 15.6%. The number of marriage registrations hit a new low in recent years. This trend poses long-term pressure on sectors like dairy and infant formula, but simultaneously drives demand growth in sectors such as sportswear, personal care, the pet economy, and elderly care services. Relevant companies are expected to leverage these demographic changes to break out in their respective fields.
Global Perspective: Valuation Advantage of Chinese Consumer Stocks After five years of adjustment, the valuation bubble in China's consumer sector has been significantly compressed, with its value-for-money advantage relative to Asian markets becoming pronounced.
Data shows that since the start of 2026, the MSCI China Consumer Staples and Consumer Discretionary indices have risen by 5.4% and 5.0% cumulatively, slightly outperforming the Hang Seng Index and the CSI 300 Index. The current forward price-to-earnings ratio for Chinese consumer stocks in 2026 is 17 times, lower than that of ASEAN (19x), Japan (28x), and India (54x). Meanwhile, a dividend yield of 4.2% is significantly higher than these markets, and the expected earnings compound annual growth rate of 10.3% from 2025 to 2027 is also competitive.
Looking at the performance of specific sub-sectors, since the beginning of 2026, stocks like Gu Ming, Li Ning, Haier Smart Home-H, and Haidilao have all gained around 9%, becoming leading forces in the sector's rally, reflecting market recognition of quality leading companies. The report believes that against a backdrop of relatively loose global liquidity and foreign capital returning to emerging markets, Chinese consumer leaders with valuation advantages and earnings resilience are likely to continue attracting fund inflows.
Full-Spectrum Allocation: From High Growth to Steady Defense In the Year of the Horse, China's consumer industry is moving away from the cyclical characteristic of "rising and falling together" and entering an era where "structure is king." Policy support provides a floor for the sector, the iteration of consumption trends and industry consolidation are breeding structural opportunities, while valuation advantages offer a safety cushion for quality companies.
JPMorgan Chase specifically recommends six stocks, corresponding to different sub-sector tailwinds: Lao Pu Huang Jin (Traditional Craft Gold + Globalization) Luckin Coffee (Efficiency-Driven + Market Share Expansion) Gu Ming (Lower-Tier City Penetration + Supply Chain Advantage) Mao Geping (Experience Services + Category Extension) Yum China (Business Model Transformation + Shareholder Returns) Pop Mart (Multi-IP Matrix + Valuation Repair).
JPMorgan Chase believes investment allocation should focus on three main themes: first, leaders in home appliances and gold jewelry benefiting from policy stimulus and premiumization; second, companies in IP derivatives, freshly-made beverages, and beauty that align with the affordable indulgence trend; third, sportswear and home appliance leaders with overseas expansion capabilities to hedge against domestic growth weakness. Against a backdrop of increasing industry divergence, selectively picking companies with core competitive strengths and strong earnings resilience will be key to capturing the opportunity of valuation re-rating in the consumer sector.
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