Capital markets reflect China’s consumption sector growth

Following IPOs from Alibaba and Luckin Coffee in 2019, more Chinese firms are expected to follow suit

Despite geopolitical events and market volatility in 2019, several successful IPOs from Chinese companies suggest that the growth story of the Chinese consumer sector is set to continue in 2020.

In November 2019, China’s largest e-commerce conglomerate, Alibaba, landed on the Hong Kong stock exchange with a US$11.2 billion IPO. So far, its stock price has surged by over 20% since the IPO despite social unrest in Hong Kong. On Singles’ Day (November 11) in 2019, Alibaba’s gross merchandise volume (GMV) reached 268.4 billion yuan (US$38.63 billion), 25.7% up from 2018.

The other recent success story came from Luckin Coffee, which was listed in the US in 2019. The company raised US$561 million and its stock price has doubled since IPO, demonstrating investor confidence in the Chinese coffee market where the average coffee consumption is now only six cups per year.

In the private market, China’s top tea drink company Hey Tea finished its series C financing in 2019, led by Tencent and Sequoia, with a valuation of nine billion yuan. The company is believed to be planning a US IPO in the upcoming years.

Jiumaojiu International, a large Chinese cuisine restaurant brand manager and operator, filed for its Hong Kong IPO in December 2019. The retail oversubscription has exceeded 600 times. Its competitor Haidilao has almost doubled its share price since its IPO in 2018.

With GDP per capita expected to exceed US$10,000, China still has one of the highest saving rates in the world of around 50% while for the US, it is less than 10%. As China’s young population becomes the key driver of retail consumption, the average spending on consumption is likely to further grow in 2020.

“With all the challenges in terms of demographic, trade disputes, defaults and deleveraging, nevertheless, the absolute strongest part of China is the consumer itself, which has shown no signs of slowing down,” says Stefan Hofer, managing director and chief investment strategist at LGT Bank (Hong Kong).

Date

14 Jan 2020

Channel

Capital Markets

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