(Bloomberg) -- When it comes to China’s trade-in policy to boost consumer spending, the success is coming two-fold: Sales of home appliances surged in September, and investors are buying up shares of their producers.
Appliance maker stocks including Midea Group Co. and Haier Smart Home Co., two of the nation’s biggest by market cap, have outperformed global peers since the $41 billion stimulus package was announced in July. While they’ve lost some of the gains in recent weeks, they’re still up more than 20% in the past three months, beating the benchmark CSI 300 Index.
Sales of appliance makers have surged by more than one-fifth last month, with buyers who traded in their old machines for new ones receiving $1.85 billion in subsidies. Analysts are optimistic China’s latest measures to revive the property market will lead to more gains for the stocks, which are still trading at lower valuation than peers.
“The relaxation of home purchase restrictions in more regions, coupled with the existing mortgage rate cuts, will have a positive impact on home-appliance consumption in the fourth quarter,” said Ren Yuchen, an investment adviser at Guotai Junan Securities Co. “The stimulus policy is expected to ramp up and take good effect.”
In the latest measure to boost the property market, Chinese banks on Oct. 21 slashed their lending rates, adding to a slew of other policies that included relaxed home buying curbs in some major cities. That’s poised to be a boon for companies such as Haier, which holds the nation’s biggest market share for fridges and washing machines, and Midea, a leader among makers of air conditioners, according to China Market Monitor and Bloomberg Intelligence data.
Shares of Midea and Haier have dropped in recent weeks, following the broader market lower after Beijing failed to unveil more details about its stimulus announcements since late September. Morgan Stanley cut its recommendation for consumer-discretionary stocks this month, citing near-term uncertainty surrounding the government’s policies and the US elections.
Still, big names such as Midea and Haier stand to benefit more than smaller peers given that consumers favor their stronger brands, Bloomberg Intelligence analyst Ada Li wrote in a note dated Oct. 21. Haier net profit grew 12% to 4.7 billion yuan ($660 million) in the third quarter, while Midea’s climbed 8.9% to 10 billion yuan, according to analyst estimates compiled by Bloomberg before the companies’ reports later Tuesday and Wednesday.
“Despite political uncertainties, we expect earnings of home-appliance sector leaders like Midea and Haier to retain stable growth,” said Jeff Zhang, an analyst with Morningstar Inc., who upgraded Haier’s Hong Kong-listed stock to buy from hold recently. “More subsidies may be granted to consumers next year and potential bottoming of the property market in 2025 should further support product sales.”
--With assistance from Filipe Pacheco, Shin Pei and Jeanny Yu.
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