J.P. Morgan China Consumer: Cheap but Unloved – Stay Selective While Waiting for the Earnings Floor
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J.P. Morgan highlights that the China consumer sector is currently characterized by historically depressed valuations, trading at roughly a 30% discount to historical averages and sitting in the 10th percentile of its price-to-earnings range. Despite this deep valuation discount, the sector remains unloved by investors due to sustained capital outflows, weak market sentiment, and a lack of clear earnings momentum.
The firm emphasizes that a definitive earnings floor has yet to materialize, with downward estimate revisions continuing across multiple sub-sectors. While earnings stabilization is tentatively projected for the second half of 2026, this recovery is highly dependent on improvements in the broader macroeconomic environment and consumer confidence. Until a verifiable bottom is established, J.P. Morgan advises investors to maintain a highly selective approach.
The strategy focuses on prioritizing defensive names with resilient, stable cash flows and robust dividend yields. Sector divergence remains pronounced: sub-sectors such as spirits and home appliances offer compelling valuations but face more intense earnings pressure. Additionally, foreign ownership is at historically low levels, potentially limiting further downside. The impact of policy stimulus has been limited so far, resulting in a consumption recovery that is notably weaker than initially expected.