Consumer Pickup Could Be Short Lived
BMI's Asia Country Risk team believes that the pickup in Chinese economic data in the latter stages of 2013 and beginning of 2014 is unlikely to be sustained. The Food and Drink team believes that the optimism surrounding a Chinese consumer comeback might be premature.
China Resources Enterprises (CRE), the state-owned multichannel consumer goods company, announced on March 20 a mixed set of results for 2013. Though profit fell to a nine-year low, an uptick in revenue across all of its operating segments has sent its shares 2.5% higher at the time of writing. However, in our opinion we suggest that rising growth rates are not likely to be sustained over the near-medium term.
We predicate this view on our belief that the late 2013 and early 2014 pickup in economic growth has been fuelled by a cyclical upswing, which we do not expect to be sustained beyond early 2014. Domestically, the upswing in new liquidity following the mini credit crunch in mid-2013 is supporting investment activity in the traditional sectors of the economy, but this could begin to fade as credit growth is beginning to slow once again. On the export front, the rebound in US and European demand is providing support for now, but we expect China's strengthening currency to begin to undermine exports as 2014 progresses.
|Pickup Not For Long|
|China Resources Enterprises - Revenue Growth By Sub-Sector (% chg y-o-y)|