A review of consumption performance during four bull markets over the past three decades reveals that consumption typically rebounds when economic fundamentals begin to recover, with its profit elasticity determining the sustainability and magnitude of the uptrend. Given the current weak macro environment, a self-driven recovery in consumption may take time. Short-term beta opportunities could emerge from potential fiscal stimulus policies. Meanwhile, based on industry observations, 2026 is expected to offer inflection points driven by wealth effect transmission and supply-side optimization. Long-term allocation strategies should prioritize structural shifts in consumption, focusing on four key directions: new products/categories (high-certainty demand in emotional and health sectors), new technologies (AI+ and biotech), new channels (cost-efficiency-driven distribution reforms), and new markets (globalization and lower-tier cities).
▍2025 Recap: Overall Industry Weakness with Structural Divergence Benefiting from national policies like trade-in programs and low-base effects, retail sales growth showed signs of recovery in H1 2025 but slowed to 3% YoY by September as policy effects waned. While luxury consumption stabilized—evidenced by LVMH and Kering’s Q3 earnings showing positive growth in Asia (ex-Japan) for the first time in six quarters—A-share consumer companies under CITIC Securities’ coverage saw Q3 net profit decline by 29.4% YoY, reflecting persistent earnings pressure. Valuations and holdings have priced in low expectations, with domestic and northbound consumer allocations hitting new lows at 9.6% and 8.8%, respectively.
▍2026 Outlook: Tracking Historical Rotation Historical patterns suggest consumption outperforms when economic fundamentals improve. However, this cycle’s recovery is likely structural rather than broad-based, contingent on employment/income recovery, stabilizing asset prices, and macro improvements. For 2026, focus areas include high-end consumption (e.g., duty-free, gaming, outbound tourism) benefiting from wealth effects and sectors with optimized supply-demand dynamics (e.g., hog farming, dairy, F&B supply chains).
▍Reiterating Long-Term Structural Opportunities Structural shifts in consumption—from goods to services and survival to experiential upgrades—are long-term trends. Strategic allocations should target: 1. **New Products/Categories**: Emotional and health-driven demand. 2. **New Technologies**: AI+ and biotech applications. 3. **New Channels**: Cost-efficient distribution models. 4. **New Markets**: Globalization and lower-tier city penetration. Key sub-sectors include IP chains, pet care, beauty/fragrance, tourism, outdoor gear, and health beverages.
▍Risk Factors Potential risks include slower-than-expected consumption recovery, geopolitical tensions, commodity price volatility, regulatory changes, and operational challenges in new business expansions.
▍Investment Strategy The combination of low expectations/valuations and consumption resilience may attract capital. Short-term opportunities hinge on policy catalysts, while long-term bets should align with structural trends. High-conviction sectors span luxury, supply-optimized industries, and innovation-driven niches like AI+ applications.
[Disclaimer: This summary is based on CITIC Securities’ research report dated November 11, 2025. For full details and risk disclosures, refer to the original document.]