By Qian Shuo
Last week, the great consumption sector had the best performance under the stable domestic economic environment. However, during the second half of the week, the gradually intense global trade situation and recent news about the trade war between China and the U.S. both sparked fears in the market and drove the main indexes to fluctuate.
The main indexes all closed with more than 2% loss. The Shanghai Composite Index fell 66.16 points, or 2.11%, to end at 3,075.14. The Shenzhen Composite Index declined 278.87 points, or 2.67%, to close at 10,169.35. The Growth Enterprise Index dropped 95.00 points to 1,709.55 leaving it with a 5.26% weekly fall. The Small and Medium-Sized Index was down 191.89 points, or 2.67%, to finish at 7,001.55.
The great consumption sector showed strong strength, with food and beverage, home appliance, medicine, clothing, and tourism stocks led the gains. Great consumption industries like medicine, education, and tourism all benefit from consumption upgrade, which can attract more consumers, and therefore, the companies are able to maintain a stable cash flow and receive premium valuation.
Despite this sector had broad gains in the past year, from the perspective of consumption upgrade and market space, markets of condiments, snacks, and high-quality liquor are still far from saturated, which means great opportunities for investors. Even though the great consumption sector didn't avoid the falling trend on Friday, its profitability is always secured.
Many favorable factors indicate the great consumption sectors' strength: more supportive policies are coming up, A-share stocks were officially included into MSCI, continuously increased fund from Shanghai-Hongkong connect, and greater consuming ability under consumption upgrade.
Thus, the consumption sector will continue to attract more capitals, and the short-term fluctuation won't affect investors' interest. After the fluctuation, there will rather be better opportunities to get involved.
At the end of the week, the White House announced a 25% tariff on $50 billion high-technology products from China. The news was unexpected and thus had significant negative effect in the market.
Also, the U.S. will impose 25% and 10% tariffs, respectively, on iron and aluminum products imported from European Union, Canada, and Mexico. Countries affected by the tariffs may work collaboratively to revenge, which triggered more concerns about a global trade war. As a result, starting on last Wednesday, the market had shown great fluctuation, with all indexes had about 2% daily change, continuing the recent adjusting trend.
As more details about the consensus reached in Washington D.C. were confirmed during last weekend's negotiation, China and the U.S. have made positive progress on trade issues.
In general, the A-share market was adjusting while encountering the effects of many factors. Especially as risk appetite emotion increased drastically under current trade conflict, short-term capitals all attracted by stocks in the consumption industry. In fact, the A-share market still has relatively good fundamentals, and almost all the previous drop was followed by a period of adjustment to recover. Hence, the market will recover soon after the loss of the week.
