CITIC SEC released a research report stating that in Q3 2025, certain core high-end consumption sectors—such as luxury goods, premium cosmetics, air travel, and high-end residential markets in key cities—performed significantly better than market expectations. Currently, China's consumer market exhibits a distinct "K-shaped recovery," with a sharp divergence between the rebound in high-end consumption and the moderate recovery of mass-market consumption. This trend is primarily driven by supply-side constraints, wealth effects among high-net-worth individuals, and marginal policy improvements, rather than a broad-based demand-driven recovery.
Specifically, the aviation industry faces limited capacity growth due to delayed aircraft deliveries and engine maintenance issues. Meanwhile, high-end retail properties and luxury hotels have led the recovery in foot traffic and revenue, benefiting from their prime locations and strong brand positioning. Additionally, wealth effects from capital market performance and rising gold prices have supported demand for cyclical sectors like luxury goods, premium travel, and gaming.
Policy-wise, industry self-regulation has stabilized airfare and yield floors, while optimized duty-free policies in Hainan and the upcoming island-wide customs closure present incremental growth opportunities. CITIC SEC recommends focusing on wealth effect transmission and supply-side optimization-driven inflection points, including high-end segments such as outbound tourism, hotels, gaming, duty-free, luxury & premium beauty, and high-end real estate.
Key insights include: - **Macau Gaming**: The most wealth-effect-sensitive sector, with November GGR up 14.4% YoY to MOP 21.09 billion, recovering to 92% of 2019 levels. - **Luxury & Premium Beauty**: Signs of stabilization emerged in Q3 2025, with leading brands like Hermès and LVMH reporting steady sales. - **High-End Real Estate**: Scarce, high-quality assets continue to outperform amid weak macro demand. - **Hotels**: Leisure demand remains strong, while business travel shows modest recovery. - **Duty-Free**: Hainan’s duty-free sales rebounded in Q4, supported by policy tailwinds. - **Aviation**: Supply constraints and demand recovery are driving fare resilience, with major airlines likely to post their first annual profit since the pandemic.
Investment strategy: Given the weak macro environment, focus on high-end consumption sectors benefiting from wealth effects, such as outbound travel, hotels, gaming, duty-free, luxury, and premium real estate.
Risks include slower-than-expected consumption recovery, geopolitical tensions, natural disasters, liquidity constraints, tariff hikes, currency volatility, and regulatory uncertainties.
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