Analysis of the Impact of China's Continuous Manufacturing Contraction on Valuations of A-Share Cyclical Industries and Export-Oriented Enterprises

Analysis of the Impact of China’s Continuous Manufacturing Contraction on Valuations of A-Share Cyclical Industries and Export-Oriented Enterprises

• Manufacturing PMI has been below 50 for consecutive months: The official Manufacturing PMI in November was 49.2 (49.0 in October), staying in the contraction range for the 8th consecutive month; the Non-Manufacturing PMI fell from 50.1 in October to 49.5, entering the contraction range for the first time in nearly three years [7][8][9].
• Cooling industrial profits: China’s industrial profits fell for the second consecutive month in November, highlighting the erosion of corporate profits by weak domestic demand and deflationary pressure [1][2].
• Market sentiment and valuation: Weak economic data have led to corrections in markets like Hong Kong stocks, and the phased rise of tech stocks has not offset growth concerns [3].

• Performance of representative cyclical/consumer stocks (past 3 months, August 19, 2025 to December 30, 2025) [0]:
  • Wuliangye (000858.SZ): Cumulative return -13.70%, annualized volatility 16.61%, maximum drawdown -17.37%
  • Kweichow Moutai (600519.SS): -3.36%, annualized volatility13.97%, maximum drawdown-8.78%
• Financial health and profit margin (Company Overview) [0]:
  • Wuliangye: P/E ~14.66x, ROE20.15%, latest quarter EPS and revenue both missed expectations (EPS-9.32%, revenue-12.12%), indicating weak demand压制 (suppressing) profit margins
  • Moutai: Although ROE remains in the high range (tool did not show detailed EPS), the stock price performance and relative defensive attributes resonate with macro pressures, reflected in weak valuation repair
• Conclusion: Cyclical consumer varieties sensitive to economic prosperity (such as baijiu) are under more significant valuation pressure; the market has repriced “manufacturing downturn + deflationary pressure” through prices.

• Representative export/foreign demand-oriented stocks (past3 months) [0]:
  • BYD (002594.SZ): Cumulative return-7.32%, annualized volatility 25.58%, maximum drawdown-18.73%
  • Midea Group (000333.SZ): Cumulative return+8.49%, annualized volatility15.79%, maximum drawdown-6.96%
• Finance and valuation (Company Overview) [0]:
  • BYD: P/E ~23.71x, ROE17.62%, latest quarter revenue ~19.498 billion yuan (tool did not disclose YoY), but quarterly profit volatility plus global trade and tariff uncertainty led to valuation discount
  • Midea: Home appliance replacement and export momentum support relatively stable valuation, reflected in positive returns and low drawdown
• Conclusion: Export-oriented enterprises show obvious differentiation; global demand and trade policies remain key variables; product structure, overseas pricing power, and channel advantages are core differences to resist external demand slowdown and tariff risks.

• Multi-dimensional chart interpretation (August19,2025 to December30,2025) [0]:
  • Stock price trend comparison (standardized=100): Wuliangye and BYD trends are weak, Midea performs relatively strong, Moutai is in between
  • Period return: Wuliangye-13.70%, BYD-7.32%, Moutai-3.36%, Midea+8.49%
  • Annualized volatility: BYD> Wuliangye> Midea> Moutai, reflecting volatility premium from external demand/policy uncertainty
  • Cumulative return curve: Midea continues to outperform, Wuliangye and BYD show significant drawdowns in the period
• Latest sector performance (December30,2025) [0]: Basic materials+0.47%, energy+0.40%; while industrial, real estate, cyclical consumer, finance, and healthcare sectors perform weakly. This shows the market still has certain defensive and allocation preferences for “physical assets and upstream energy”, but remains cautious on mid-downstream manufacturing and cyclicals.

A) Short-term (0-3 months)

• Opportunities:
  • Policy and expectation-driven: If PMI marginally improves (e.g., approaching 50 from49), structural stimulus (equipment update, rural consumption, etc.) is implemented, short-term overweight low-valuation cyclical varieties like home appliances/engineering machinery
  • Export-resilient sectors: White goods, some machinery and parts with overseas pricing power and channel advantages (combined with positive samples in the tool)
• Risks:
  • External demand and tariff disturbances: Repeated U.S. trade policies and tariff expectations may suppress valuations of related export stocks (e.g., high-volatility varieties like automobiles in the tool)
  • Earnings delivery pressure: Quarterly earnings missing expectations will quickly lead to valuation downgrades (e.g., Wuliangye’s latest quarter EPS/revenue double miss case)

B) Mid-term (3-12 months)

• Opportunities:
  • Supply consolidation and leading enterprise concentration: After mid-stream manufacturing supply contraction, segment leaders with healthy cash flow and controllable liabilities are expected to obtain valuation premiums (focus on ROE and cash flow quality)
  • New momentum and new markets: New tracks like electric vehicles, new energy mid-stream, and smart home appliances can bring alpha if overseas penetration and profitability are continuously verified
• Risks:
  • Uncertainty in demand recovery slope: Limited deflation and real estate chain repair efforts may restrict the valuation elasticity of cyclical stocks
  • Fund rotation and style drift: If the global economy enters a more persistent “growth slowdown + high interest rates”, funds may rotate from high-valuation growth/cyclicals to defensive sectors, exacerbating intra-sector valuation differentiation

C) Allocation and Screening List

• Cyclical industry allocation suggestions: Underweight traditional cyclicals highly related to the real estate chain (steel, cement, etc.), and overweight defensive upstream varieties like home appliance replacement, energy, and upstream resources when opportunities arise
• Export-oriented screening conditions:

1. Stable or improving ROE/gross margin, operating cash flow adequately covers net profit
2. Moderate proportion of overseas revenue (not overly concentrated in a single market), with channel and brand moats
3. Reasonable valuation: P/E is not at an extreme high relative to historical quantiles

• Risk hedge: Moderately reduce the overall volatility exposure of the portfolio, increase the proportion of low-correlation assets (defensive consumer, utilities, etc.), and dynamically take profits on high-volatility export targets

• Valuation restructuring in progress: Sustained manufacturing contraction has been transmitted to the A-share market through three channels: earnings downgrades, valuation discounts, and capital outflows. Cyclical-related consumers are under more obvious pressure, while export-oriented enterprises show more differentiation.
• Differentiation is key: Even for “foreign demand-oriented”, Midea and BYD have very different trends, reflecting that industry structure, corporate governance, and global competitiveness differences have greater weight on valuations.
• Policy and data verification: Whether PMI can return to the expansion range, whether industrial profits bottom out and rebound, and the export and tariff path will determine the valuation repair rhythm and space of cyclical and export sectors. It is recommended to closely track quarterly earnings expectations, capacity utilization, and inventory changes, and dynamically adjust positions based on the above screening framework.

Data Sources and References
[0] Jinling API Data: A-share indices, sectors and individual stock prices, volatility, drawdown, company overview, earnings expectations and financial indicators (e.g., Wuliangye, Moutai, Midea, BYD)
[1] Bloomberg - “China Industrial Profits Decline in November as Demand Cools” (https://www.bloomberg.com/news/articles/2025-12-27/china-industrial-profits-decline-in-november-as-demand-cools)
[2] Bloomberg - “China Set to Deliver Another Lackluster Economic Report Card” (https://www.bloomberg.com/news/articles/2025-12-12/china-is-heading-for-another-lackluster-economic-health-check)
[3] Bloomberg - “Chinese Stocks Near Correction as Rally Fades on Weak Economy” (https://www.bloomberg.com/news/articles/2025-12-16/chinese-stocks-set-for-correction-as-rally-fades-on-weak-economy)
[7] TradingView/Reuters - “China’s factory activity shrinks for eighth month in November, PMI shows” (https://www.tradingview.com/news/reuters.com,2025:newsml_P8N3R3034:0-china-s-factory-activity-shrinks-for-eighth-month-in-november-pmi-shows/)
[8] TradingView/Reuters - “China’s factory activity shrinks again in November, services activity cools” (https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3X600A:0-china-s-factory-activity-shrinks-again-in-november-services-activity-cools/)
[9] BreakingTheNews - “China’s manufacturing activity slightly up in November” (https://breakingthenews.net/Article/China’s-manufacturing-activity-slightly-up-in-November/65268860)