What is the PMI and why does it matter for these stocks?

PMI (Purchasing Managers' Index) is an economic indicator that measures business activity in manufacturing and services sectors. In China, the manufacturing PMI has been contracting (below 50) while the non-manufacturing PMI is expanding (above 50). This divergence signals that China's economic growth is increasingly driven by services rather than factories, which is why companies in this stock group could benefit, as they focus on domestic services like e-commerce, entertainment, and travel.

Why focus on domestic consumption in China?

Domestic consumption in China represents a more stable growth opportunity than export-driven manufacturing, especially during global trade tensions. With a population of 1.4 billion people and a growing middle class, China's internal market offers enormous potential. The companies in this group primarily serve Chinese consumers, making them less vulnerable to international trade disputes while positioning them to benefit from increasing local spending on services and digital products.

What's the difference between China's manufacturing and services sectors?

China's manufacturing sector traditionally focused on producing goods for export, making it sensitive to global demand and trade relations. The services sector, however, primarily serves domestic needs through areas like retail, entertainment, travel, and financial services. As China's economy matures, services are becoming more important, now accounting for over 50% of GDP. This transition represents a structural economic shift that the companies in this group are positioned to benefit from.

What are "consumer-facing digital sectors"?

Consumer-facing digital sectors are online businesses that serve everyday consumers directly. In this stock group, these include e-commerce platforms like Alibaba and JD.com, digital entertainment companies like Bilibili and NetEase, and online travel services like Trip.com. These companies operate primarily through the internet and mobile apps, providing services directly to Chinese consumers rather than other businesses, and represent the growing digital service economy in China.

How might these stocks perform when China's manufacturing is weak?

These stocks might show resilience even when manufacturing data is weak because they primarily depend on domestic consumption rather than exports. While factories might produce less when foreign demand drops, Chinese consumers can continue spending on e-commerce, digital entertainment, and travel services. This separation between manufacturing and services is exactly why this stock group was created – to offer exposure to the more stable domestic consumption trend within China's evolving economy.

15 handpicked stocks

China's Services Sector Pivot

While China's manufacturing struggles with weak global demand, its domestic services sector is thriving. These carefully selected stocks represent companies positioned to capture growth from China's expanding consumer economy and digital services landscape.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 30