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More and more signs are popping up that China is slowing.JP Morgan analysts Elsa Yang, Ebru Sener Kurumlu, Kshitij Gupta hosted a two-day consumer tour in Shanghai, and after talking to retailers discovered that the shoppers are in fact pulling back.
The slower pace of growth in the consumer discretionary sector is supposed to be especially stark in the first half of 2012, given the strong performance from a year ago.
For retailers, JPmorgan now expects a 15% year-over-year (YoY) average sales increase (ex-sportswear) and 12.5% earnings growth. These numbers are 3% and 7% below consensus. Retail sales are expected to slow because of rising macro headwinds like a drop in consumer spending, as we found in an independent report from Credit Suisse; rising competition and warmer weather.
But it isn’t all bad news. Most retailers expect strong-year end sales and Morgan Stanley analysts see some caveats too:
“We do not expect the magnitude of slowdown to be as severe as in 08/09. From a structural perspective, the continuous wage increase and rising urbanization provide solid support for consumer spending. Moreover, from the retail sector fundamental perspective, companies are increasing exposure to lower-tier cities where the consumption has remained resilient and consumer sentiment has been less sensitive to the external macro impacts.”
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