China’s consumer stocks are facing a prolonged downturn as investor focus and capital continue to shift towards the country’s fast-growing artificial intelligence (AI) and technology sectors. MSCI China’s consumer goods sub-indexes have fallen around 18% over the past six months, bringing them close to their lowest levels in nearly a decade. In contrast, the technology gauge, which has significant exposure to AI-related companies, has more than doubled from its 2016 level. This also highlights the growing gap between China’s consumer economy and its technology sector as the AI-focused companies have attracted strong investor interest on expectations of continued growth and technological advancement, consumer-facing businesses have struggled to generate similar momentum. Comanies' corporate earnings have also been affected as during the latest earnings season, consumer staples companies included in the MSCI gauge missed profit expectations by nearly 50%, pointing to continued pressure on demand and corporate profitability. The trend reflects China’s lopsided economy. Beijing’s drive for tech supremacy has fueled an export boom and funneled capital into AI firms with limited spillover to domestic demand. China's August retail sales crept up just 0.4%, and there are few signs that investor pessimism toward the sector will ease after the Golden Week holiday a crucial period for travel and spending. “Data this summer has disproved that there is any recovery in spending, and affirms that it still is a one-way bet on exports,” said Chen Shi, fund manager at Shanghai Jade Stone Investment Management Co, as reported by Bloomberg. “From a market perspective, that has created a crowding-out effect. Investors have become increasingly concentrated in AI beneficiaries, while sectors such as consumption have been sold indiscriminately.” Weak consumer demand emerged as a recurring theme during the latest earnings season. The sector’s woes are unfolding against a global backdrop in which investors have shunned consumer shares for beneficiaries of the AI investment boom, according to Winnie Wu, head of Asia Pacific equity strategy at Bank of America. Get Latest News live on Times Now along with Breaking News and Top Headlines from Business, Companies and around the world. Vikas Kumar is Deputy Editor (Business) at Times Now driving coverage across policy, economy and markets. He possesses nearly a decade of experience i... View More