(Bloomberg) -- China’s once-mighty shoppers have turned into reluctant spenders in the face of an economic slowdown, a shift that’s proving particularly painful for stocks related to premium brands.

High-end liquor maker Kweichow Moutai Co., luxury car dealer Zhongsheng Group Holdings Ltd. and Nike distributor Topsports International Holdings Ltd. have all fallen around 10% or more this year, bucking gains in equity benchmarks. Analysts attribute the underperformance to China’s consumption downgrade trend, as evidenced by lackluster spending during the Dragon Boat Festival and early signs of weakness in the ongoing 618 shopping event.  

Consumption has remained tepid despite Beijing’s efforts to boost spending, which include trade-ins for appliances and cars to relaxed loan rules for automobiles. While companies that offer affordable products have performed better than their luxury peers in the market, doubts over the strength of China’s economic recovery are giving investors cold feet about consumer stocks in general.  

“This downturn trend for premium names hasn’t bottomed out yet,” said Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co. “We will see some improvement only if the economy and property market start to stabilize in 2025.”

Chinese premium brands have struggled to come up with a viable strategy as consumers trade down. The demand for more bang for the buck is in sharp contrast to a few years ago, when the country’s burgeoning middle class raised hopes of a consumption upgrade that would fuel the sales of luxury goods. 

The stock of Kweichow Moutai, whose flagship baijiu drinks typically retail above 2500 yuan ($344.58) a bottle, has slid 9.9% in 2024, compared to a 3.2% rise in the CSI 300 Index of mainland shares. Budweiser Brewing Co APAC, which markets premium beers in China, is one of the year’s worst performers on the Hang Seng Index, along with Zhongsheng Group. Both stocks lost about third of their value. 

It’s not just local firms that are suffering. Some foreign luxury labels have had to offer steep discounts in China amid a pullback in spending. 

Jefferies Financial Group Inc. analysts noted slowing sales in May for apparel and appliances despite retailers bringing forward 618 promotions. The brokerage flagged caution for Nike distributors Topsports and Pou Sheng International Holdings Ltd. in China as the brand’s pricing strategy may be “too premium” for consumers.   

Traders are hoping for more forceful measures to revitalize consumption in the third plenum in July, one of the nation’s most important political events where top leadership map out longer-term economic plans and signal potential policy pivots. Data next week may reinforce such need, with a Bloomberg survey pointing to a modest 3% growth in May retail sales. 

The biggest catalyst for spending “would be continued relaxation of property measures and efforts to stimulate consumption,” according to David Chao, a strategist at Invesco Asset Management in Singapore. There may be more coming out from the plenum to boost sentiment, which can then lead to an improvement in retail spending, he said.   

While pricey brands have borne the brunt of the recent selling, consumer stocks in general have lagged the market’s rebound. An MSCI China sub-gauge of consumer staples has fallen nearly 12% this year versus a more than 6% gain in the benchmark. 

Strategists at UBS Group AG this month shifted their preference away from domestic consumption stocks into semi-equipment and property, citing factors including tepid income growth and high utility costs. 

Wild swings in PDD Holdings Inc., whose stock was one of the most popular bets in 2023 as its cut-rate pricing strategy won fans, show how an intensifying price war is worrying investors. Its US-listed shares have fluctuated after surging 79% in 2023. Shares of Guangzhou-based Miniso Group Holding Ltd., a budget retailer, are little changed in Hong Kong for the year despite its overseas expansion plans.   

“There’s an overall wait-and-see sentiment as uncertainties surrounding the economic situation are significant,” said Shen Meng, a director at Beijing-based Chanson & Co. “Mid- to high-end brands in China have boosted production capacity only to see weakening demand, and that gap is likely to hurt margins and pressure stock prices.”

--With assistance from Jeanny Yu, Zhu Lin, Mengchen Lu, Sangmi Cha and Aya Wagatsuma.

©2024 Bloomberg L.P.