China’s dual economic forces underpin contrasting stock market trajectories

China’s stock market is being split by two completely different forces. One side is booming thanks to industrial exports tied to global demand for AI infrastructure. The other side, built around domestic consumption, is still struggling.

This divide is now driving every major investor decision, with big firms like Morgan Stanley and JPMorgan Asset Management choosing to back the exporters and ignore the local retailers.

Manufacturing and tech-related companies are dominating. The ones focused on local consumers are falling further behind. Investors are done waiting for a broad recovery. They’re now betting on the side of China that is delivering real earnings from real demand.

Export stocks rise as investors chase AI infrastructure gains

William Bratton from BNP Paribas Exane said: “There are clearly two very different Chinas at the moment.” He said his team prefers materials, industrials, and technology over anything consumer-facing, and that earnings numbers prove why.

The winners are easy to spot. China XD Electric, a big player in ultra-high-voltage grid work, is up 75% this year. TBEA, which makes electrical components, is up 28%. These companies are riding the global push for artificial intelligence buildouts, and they’re cashing in.

Morgan Stanley just backed a group of stocks they think will ride this momentum. Their picks include Sany Heavy Industry, Jiangsu Hengli Hydraulic, Han’s Laser, and Wuxi Lead Intelligent.

Their analysts, including Sheng Zhong, said, “Construction machinery is entering an improvement cycle, with the domestic recovery continuing along with overseas demand.” They’re seeing what they called “decent growth momentum” in exports.

Min Lan Tan from UBS said, “I think industrials outperformance will continue because that’s where there’s a lot of structural growth that is happening.” She added, “Nobody can afford to really step back from this AI race.”

That demand is pushing forecasts higher. Over the past six months, the CSI 300 Industrials Index saw a 10% rise in earnings expectations. For the consumer index, it was just 5%. The difference says it all.

Consumer stocks fall as property problems drag on

Retail-linked names aren’t getting the same love. Fuyao Glass Industry is down 5.4% this year. Great Wall Motor has dropped 4.6%. The main issue is China’s property crisis, which still hasn’t been fixed. People just aren’t spending. The recovery that was supposed to boost domestic demand hasn’t shown up.

Chaoping Zhu from JPMorgan Asset Management said the big investors he talks to aren’t confident in local demand coming back. “They remain cautious about domestic recovery, focusing instead on the earnings growth potential of the ‘going global’ theme,” he said.

Zhu also said the Chinese government is now leaning harder into advanced manufacturing and tech, trying to use the stock market to boost both capital formation and household wealth.

Of course, this industrial boom isn’t bulletproof. If foreign countries push back on cheap Chinese goods, the party could end fast. But right now, Beijing’s top policy focus is still on fixing consumption. That means some bargain hunters might look at beaten-down consumer stocks — if they’re brave enough.

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