People walk next to stands selling food at the Huangpu district in Shanghai on January 20, 2026. (Photo by Hector RETAMAL / AFP)
Beijing: A tale of two economies is driving China’s stock market, prompting investors to raise bets on the beneficiaries of an industrial export boom at the expense of firms mired in a consumption slump.
The world’s No 2 economy is painting a picture of consumer-sensitive sectors lagging further behind industries linked to manufacturing and technology.
That’s making Wall Street firms including Morgan Stanley and JPMorgan Asset Management more bullish toward Chinese companies from machinery producers to power grid builders.
These Chinese firms have thrived on the world’s appetite for advanced manufacturing or surging demand for artificial intelligence (AI) infrastructure.
China’s economy has grown more bifurcated in the past year.
New industrial forces have helped deliver surprisingly robust exports that defied President Donald Trump’s tariffs.
Meanwhile, domestic consumption remains anaemic amid a prolonged property downturn.
For investors, that split is reshaping their strategies, rewarding selective bets on global-facing industrial champions rather than those on a broad consumer-led recovery.
Clear preferences
“There are clearly two very different Chinas at the moment,” said William Bratton, head of cash equity research in Asia Pacific at BNP Paribas Exane.
“We have a clear preference for the materials, industrials, and technology sectors and sub-industries over their consumer-facing peers – a preference reflected in earnings trends and the recent economic data.”
Much of China’s export strength is being driven by equipment makers, electronic component manufacturers and metal miners that are tied to global demand for AI infrastructure. China XD Electric Co, a key contractor of ultra-high-voltage grid construction, has surged 75% this year, while electrical component-maker TBEA Co is up about 28%.
Morgan Stanley was the latest to join the chorus of bullish calls, favouring a group of stocks that included Sany Heavy Industry Co, Jiangsu Hengli Hydraulic Co, Han’s Laser Technology Industry Group Co and Wuxi Lead Intelligent Equipment Co.
“Construction machinery is entering an improvement cycle, with the domestic recovery continuing along with overseas demand,” the bank’s analysts including Sheng Zhong wrote in a note, citing “decent growth momentum” for exports.
In contrast, consumer stocks have lagged.
Shares of Fuyao Glass Industry Group Co are down 5.4% this year, while those of Great Wall Motor Co have fallen 4.6%.
“Recent conversations with investors indicate that institutional investors remain cautious about domestic recovery, focusing instead on the earnings growth potential of the ‘going global’ theme,” Chaoping Zhu, a global market strategist at JPMorgan Asset Management, wrote in a note.
“Policymakers are emphasising advanced manufacturing and technology as new growth drivers, with the stock market playing a key role in supporting capital formation and household wealth allocation,” Zhu added.
Potential pushback
To be sure, the outlook of Chinese industrials companies may turn sour if they face stronger pushbacks from countries worried about an influx of cheap goods.
Meanwhile, as Beijing lists reviving consumption as its top policy task this year, some observers argue that the sector’s valuations may be attractive enough for bargain hunters.
For now, the momentum of the two-speed economy appears intact: Earnings forecasts for the CSI 300 Industrials Index have climbed 10% over the past six months, compared with just a 5% increase for its consumer peer, according to data compiled by Bloomberg.
“I think industrials outperformance will continue because that’s where there’s a lot of structural growth that is happening,” said Min Lan Tan, head of the Asia Pacific chief investment office at UBS Group AG.
“Nobody can afford to really step back from this AI race, so we think that will continue to drive the industrial sector.” — Bloomberg
