Key Takeaways
Prominent fund manager Zhang Kun is doubling down on Chinese consumer stocks, arguing that a focus on population decline misses a market of 300 million increasingly wealthy shoppers.
E Fund’s Zhang Kun is maintaining his bullish stance on China’s domestic consumer sector, arguing in his latest quarterly report that widespread pessimism is misplaced and overlooks the significant purchasing power of an expanding middle class. His strategy holds firm even as some peers pivot toward the AI and technology sectors, keeping faith in premium brands from liquor giant Kweichow Moutai to tech conglomerate Tencent Holdings.
"We believe that every generation of Chinese people will live better than the previous one," Zhang Kun, who manages the E Fund Blue Chip Select fund, said in his Q1 2026 report. "The current difficulties are cyclical, not structural."
Zhang’s view contrasts with a market grappling with a 20.2% year-over-year drop in new home sales value in the first two months of 2026. Despite this, he pointed to a nascent recovery, with China’s CPI turning positive to 1.3% in February and second-hand home prices in core cities beginning to stabilize. While consumer-sensitive sectors have slowed, China’s broader economy showed resilience, posting 5% GDP growth in the first quarter, according to the National Bureau of Statistics.
The influential manager is betting that as per-capita buying power grows, the "effective consumer population" for premium goods could expand from 300 million to 400 million people, a more critical driver for his holdings than the country's headline population figures. During the quarter, Zhang modestly increased his holdings in Tencent and Alibaba while trimming positions in top-performing liquor stocks to rebalance the portfolio.
A key pillar of Zhang's argument is that investors should focus on purchasing power rather than total population. He counters concerns over China's slowly declining population by highlighting the potential of its core consumer base. "The effective consumer population for some optional consumer goods may only be 300 million," Zhang wrote. "Compared to the change in the total population of 1.45 billion, it is more important whether the effective consumer population of these products can be increased from 300 million to 400 million."
He argues that the unit purchasing power of this group is a more significant variable than the total number of people, pointing out that the U.S. consumer market, with 350 million people, is larger than China's, which in turn is six times larger than India's, despite both Asian nations having similar population sizes. This aligns with a broader trend where Beijing's retail outlook for 2026 is seen as hinging on a recovery in consumer confidence after a challenging 2025.
Zhang also sees a future where market share concentrates around a few dominant brands, a trend that disproportionately benefits established leaders. He noted that top-tier companies with strong brand recognition can capture a larger share of "consumer surplus" and profits, avoiding the commoditized, low-margin competition that plagues other firms.
To illustrate, he cited that Apple secures 85% of the mobile phone industry's profits with just 20% of global sales volume. Similarly, a single high-end baijiu producer in China earns 50% of the entire industry's profit from just 2% of its sales volume. This focus on quality and brand loyalty is a cornerstone of his portfolio, which remains heavily weighted toward consumer staples and internet platforms with deep competitive moats.
While acknowledging the real estate sector's drag on the economy—with development investment down 11.1% in the first two months of the year—Zhang sees "the dawn of endogenous stabilization." He identified several green shoots indicating a gradual recovery in household confidence.
Among them are the stabilization of second-hand housing prices in top-tier cities, a positive turn in RevPAR (revenue per available room) for the hotel industry, and positive same-store sales growth for leading restaurant enterprises. "Although the slope of the recovery in consumer confidence is relatively gentle, the direction is certain," Zhang concluded, suggesting that for patient investors, the significant deviation between the price and intrinsic value of high-quality companies represents a compelling opportunity.
This article is for informational purposes only and does not constitute investment advice.
