UBS view: rising reflation expectations in the second half could boost consumer stocks
Pang Yanyan, head of consumer industry research for UBS Investment Bank Greater China, wrote that UBS expects rising 'inflation' expectations in the second half of this year to become an important catalyst for China's consumer sector, especially consumer staples. The view is based on higher upstream costs and improving supply-demand conditions, and the impact has not yet been fully reflected in current share prices.
Inflation data: PPI accelerates, CPI rebounds but is still dragged by pork
UBS said China's mainland PPI accelerated to 2.8% year on year in April, mainly driven by a sharp rise in energy prices. CPI rose 1.2% year on year, weighed down by weak pork prices. If hog prices recover in the second half and high energy costs are partly passed through downstream, CPI is expected to move higher.
K-shaped recovery: wealth effects and earnings growth together, but the market still underestimates reflation
UBS believes consumer demand will continue to show a K-shaped recovery in 2026, driven mainly by: (1) a wealth effect from a stabilizing property market and rising stocks; and (2) growth in industrial corporate profits. The bank noted that faster inventory destocking over the past two quarters (such as baijiu), channel diversification, reduced overcapacity (hogs and dairy), and industry consolidation have helped strengthen pricing power and protect margins.
At the same time, the market still underestimates reflation potential. UBS believes this can be verified by early price hikes by some companies and a possible rebound in hog prices in the second half.
Performance and forecasts: most of 75 coverage names cut, with clear divergence
UBS Research summarized first-quarter results and one-month earnings forecast revisions for its China consumer coverage: among 75 companies, 46 had reported Q1 results; 10 saw EPS estimates raised and 34 saw them cut, showing a downward revision trend versus the same period last year.
The divergence is clear. Companies with higher EPS estimates mainly include: (1) firms with structural growth opportunities; and (2) industry leaders with strong cash generation.
Valuation and sector preference: staples over discretionary, but baijiu needs stock picking
UBS says sector valuations remain attractive. MSCI China consumer staples/discretionary (including auto and internet names) trade at 16x and 15x forward 12-month earnings respectively. Against expected 2026-28 EPS CAGR of 12% and 33%, they represent 20% and 36% discounts to MSCI Global consumer staples/discretionary (whose expected EPS CAGR is 7% and 16% respectively).
Some consumer companies have already locked in raw material costs for the first half. UBS believes reflation will help firms pass costs downstream and maintain margins. Based on last year's fourth quarter and this year's first-quarter results, the bank thinks baijiu still requires careful stock selection and says it prefers consumer staples over discretionary names.
UBS top picks and least preferred names in consumer stocks
UBS is more bullish on China's consumer sector names including Muyuan Foods (02714.HK), Kweichow Moutai (600519.SH), Yili (600887.SH), Dongpeng Beverage (09980.HK), Guming (01364.HK), Yum China (09987.HK), Haidilao (06862.HK), China Resources Beer (00291.HK), Anker Innovations (300866.SZ), Anta Sports (02020.HK), Laopu Gold (06181.HK) and MINISO (09896.HK).
Its least preferred names are: Sichuan Swellfun (600779.SH) and Yonghui Superstores (601933.SH).
Note: Hong Kong stocks are delayed by at least 15 minutes; short-selling data as of 2026-06-05 16:25; A-share quotes are delayed by at least 15 minutes.
