20150713-高盛-How_will_Chinese_consumers_react_to_stock_market_volatility__22页_490kb

Summary of "How will Chinese consumers react to stock market volatility?"

Core Content

This report analyzes how Chinese consumers might react to stock market volatility, focusing on the potential impact on consumption patterns, key sectors, and related markets such as Hong Kong and Japan. It also highlights investment recommendations based on the analysis of consumer behavior and market conditions.

Main Points

• Stock Ownership in China:
  China has 51 million active stock investors, which corresponds to approximately 37 million households. The Urban Middle cohort, a significant segment of the population, accounts for 146 million workers and 100 million households, contributing 40% of domestic private spending.

  • About one-third of Urban Middle households hold stock accounts.
  • Less than 7% of these households use margin accounts, which is a small proportion of the total.
  • The majority of equity holdings are in individual stock accounts, not mutual funds.

• Deleveraging Impact:
  A prolonged market correction could lead to a 10% reduction in spending from households with margin accounts.

  • This would translate into a 20–30 bps negative impact on overall private consumption.
  • Unlevered households are expected to be less affected, as the CSI300 index is still up 10% year-to-date and 81% over the past year.

• Consumer Behavior During Financial Crises:

  • In 2007/08, the A-share correction did not lead to a significant slowdown in retail sales, though auto and property sales were affected.
  • In 1997/98, Hong Kong experienced a more severe financial shock, with most consumption categories declining by double digits for over 12 months, while supermarkets remained resilient.

• Key Stock Picks:

  • China Domestic: Anta (Buy), Intime (Buy), Hengan (CL-Buy), CRE (Buy)
  • HK Retail: Lifestyle (Buy), Luk Fook (Buy)
  • Regional Gaming: MGM China (CL-Buy), Wynn Macau (Buy)
  • Japan Retail/Restaurants: Ezaki Glico (CL-Buy), Saizeriya (Buy)
  • Korea: Amore and LGHH could face a 2–3% EPS downside due to a potential 10pp deceleration in DFS sales.

Sector Implications

China Domestic

• Consumer Discretionary:

  • Anta and Intime are top picks due to their resilience to stock market volatility.
  • High-priced categories are more vulnerable to spending cuts, while mass-market items remain stable.
  • Sportswear is less affected due to structural growth in sports participation.
  • Intime's O2O strategy and tie-up with Alibaba provide a competitive advantage.

• F&B and Personal Care Products:

  • Hengan and CRE are recommended due to their strong brand presence and resilience to economic downturns.
  • Sanitary napkins and mid-to-high-end products are less sensitive to macroeconomic changes.
  • CRE's diversified product mix allows it to adapt to shifting consumer preferences.
  • Companies like CR Snow may benefit from a shift in consumer spending toward mid-end products.

Outbound Travel

• HK Retail:

  • HK accounts for 50% of China's outbound shopping spend.
  • A 10% drop in Chinese tourist traffic could reduce HK retail sales by 3–4%.
  • Lifestyle and Luk Fook are top picks due to their lower earnings drag and mass-market exposure.

• Regional Gaming:

  • Macau's GGR is heavily reliant on mainland Chinese tourists, with over 80% attributed to them.
  • A prolonged stock market correction could reduce gaming spending, especially among urban middle-class investors.
  • Visa policy changes may help offset some of the negative impact.
  • Earnings sensitivity for Macau operators is estimated at 1.2–2.8% per 1% change in GGR.

• Japan Retail & Consumer Products:

  • Japanese retail and consumer product companies may see limited impact from a prolonged Chinese stock correction.
  • Inbound tourist demand is a key driver, but its contribution to sales is relatively small (e.g., 10–15% for consumer electronics).
  • Duty-free sales are more exposed to Chinese demand, with Kao, Shiseido, and Unicharm being key players.
  • The impact on operating profits is expected to be limited, even for companies with high exposure.

Korea

• Cosmetics Brands:
  • Amore and LGHH are heavily reliant on travel retail sales from China.
  • A slowdown in Chinese inbound could significantly affect their EPS.
  • The share of Chinese tourists in DFS sales has increased from 16–17% in 2007–2008 to 43% in 2014.

Key Takeaways

• The impact of stock market volatility on consumption is likely to be limited, especially for unlevered households.
• High-ticket discretionary items and luxury brands are more vulnerable to spending cuts.
• The retail sector faces structural challenges from e-commerce, but strong brands and functional differentiation can mitigate these.
• The potential impact on Japan and Korea is relatively modest due to the limited share of Chinese demand in their markets.
• The report emphasizes the importance of brand strength, channel adaptability, and macroeconomic factors like home prices and wage growth in driving consumer behavior.

Related Research

• Asia: Consumer Staples: China trip takeaways: Taste and channel shifts drive performance (July 8, 2015)
• HK Retail: Down but not out: Laying out the recovery roadmap and key ideas (May 26, 2015)
• China Consumer Close-Up: January 13, 2015
• Should we worry about slowdown in dept store comps?: May 26, 2008

Analyst Contributors

• Simon Cheung (Regional Gaming)
• Paul Lian (Regional Gaming)
• Ricky Tsang (HK/China Consumer Discretionary)
• Lisa Deng (HK/China Staples)
• Sho Kawano (Japan Retail & Restaurants)
• Jingyuan Liu (Japan Retail)
• Keiko Yamaguchi (Japan Staples)
• Christine Cho (Korea Consumer)
• Joshua Lu (Asia Pacific Consumer)
• Becky Lu (HK/China Consumer Discretionary)

Disclosures

• Goldman Sachs does business with companies covered in its reports and may have conflicts of interest.
• This report is for informational purposes only and should not be the sole factor in investment decisions.
• For full disclosures, refer to the Disclosure Appendix or visit www.gs.com/research/hedge.html.