China Galaxy Securities (CGS) released a research report stating that in late October, market focus will shift to Q3 earnings, with companies in the new consumption sector demonstrating strong performance. High-quality stocks and related sectors should be closely monitored. Looking ahead to Q4 2025, the firm suggests tracking two key themes: 1) year-end valuation rotation, targeting fundamentally solid stocks in new consumption; and 2) cyclical sectors with low valuations and supply-side consolidation, as PPI recovery gradually transmits to CPI improvement.
CGS outlined the following key insights: 1. **New Demand Driving Supply**: The 5th Plenary Session of the 20th CPC Central Committee upgraded the emphasis on "domestic demand" and "internal circulation." The shift from "innovation-driven, high-quality supply leading demand creation" to "new demand guiding new supply, and new supply fostering new demand" highlights a balanced approach. Additionally, anti-overcapacity measures will promote supply-demand equilibrium.
2. **High-Growth New Consumption**: New consumption demand remains robust, with sustained growth potential in: - **Channels**: Rationalized consumer behavior drives efficiency improvements, benefiting instant retail, snack wholesale, and membership supermarkets. - **Categories**: Health-focused, functional products (e.g., coconut water, konjac, health foods) gain traction while retaining taste and novelty appeal.
3. **Policy-Benefited Sectors**: - **Dairy**: Demographic policies (e.g., fertility incentives) may boost demand for liquid milk, infant formula, and children’s cheese. - **Foodservice Supply Chain**: Dining vouchers and local subsidies could sustain recovery in catering consumption.
4. **PPI-to-CPI Recovery**: Post-2021 milk price declines may ease, with moderate rebound expected due to: - **Supply**: Anti-overcapacity measures, herd reduction, and import cuts tightening supply. - **Demand**: Policy-driven dairy consumption recovery.
**Risks**: Slower-than-expected demand recovery, intensified competition, channel reform delays, and food safety issues.