Buy China consumer stocks, Bank of America tells its clients

Bank of America told its clients to buy Chinese consumer stocks as the world’s second-biggest economy continues to roll out stimulus measures targeting households.

The latest wave of stimulus, an extra CNY 2 trillion (1.5% of GDP), will allow local governments to double private property purchases. According to BofA strategists, this is “meaningful given annual residential property sales [are] currently tracking CNY 8 trillion.”

They note that unlike in the last two decades, the ongoing stimulus is directly aimed at households. China's consumption represents just 39% of its GDP, far lower than in other emerging markets, with Mexico at 70%, Brazil at 63%, and India at 60%.

“Buy China consumer stocks,” strategists emphasized.

In terms of capital flows, BofA reports that global markets saw mixed activity in the week leading to October 16.

Cash funds experienced their largest outflow in 12 weeks, with $17.4 billion leaving money market funds.

Meanwhile, bond funds attracted $23.2 billion, the largest inflow since October 2020, while equity funds saw $21.4 billion in inflows. In addition, gold witnessed its biggest inflow in 12 weeks, attracting $1.2 billion.

Notably, the bond market saw impressive momentum, with investment-grade bonds receiving $54.9 billion over the past five weeks, the largest inflow since September 2020.

Emerging market equities, however, saw a significant reversal with a $4.2 billion outflow, marking the largest exit since October 2023. China itself recorded the biggest outflow since July 2015 at $4.1 billion, following a record inflow of $39.2 billion the previous week.