China's Consumption Growth May Remain Driven by Gen Z, Elderly Population — Market Talk

By Doug Busch

Investors often look to January for clues about institutional intent, and this year's opening sent a notable signal in China.

On the first trading day of 2026, the iShares China Large-Cap ETF rallied 4%, its strongest advance since mid-April amid heavy volume. The gap completed a bullish island reversal following the Dec. 16 gap down. It also pushed the FXI ETF back above a bearish head-and-shoulders formation. That shift is notable given persistent geopolitical and economic concerns. Just as importantly, the market's failure to extend losses after the sharp 7.5% weekly selloff in early October suggests downside momentum has been exhausted. From a technical standpoint, the setup is beginning to favor selective risk-taking. Here are three individual stocks that stand out.

Alibaba Group, the second-largest holding in the FXI, exerts significant influence on the broader China trade. The stock is trading roughly 22% below its recent 52-week high and is down about 17% over the past month. In the context of a 79% gain over the past year, the pullback appears orderly and brings shares back into a more attractive entry zone for investors with longer-term horizons.

The recent bout of weakness began with a bearish shooting-star candle on Oct. 2, followed by a 15% decline the next week. That slide carried the shares back toward a prior cup-base breakout near $150/share, where the stock is now trading. Notably, the depth of that pattern round number theory emerged with support near the very round $100 level in early April. On Jan. 2, the stock rebounded more than 6%, breaking out of a bullish falling-wedge formation. Some slight weakness could follow with the completion of a bearish evening-star pattern on Jan. 6. A potential entry near $147 is in an area that would fill the opening gap of 2026. If the setup holds, the shares could work back toward $190 by mid-2026, implying upside of roughly 29% from current levels. The bullish thesis remains intact as long as the stock holds above $137.

Alibaba Group closed at $146.75 Wednesday.

NetEase, an online gaming and e-commerce company, has delivered a solid 56% gain over the past year. The shares currently trade about 12% below their Sept. 17 peak and have dropped nine of the past 16 weeks, setting up a potential area for bulls to step in and defend.

The stock has clearly outperformed the FXI since the second quarter of 2025, as seen on the ratio chart below, and has been digesting those gains since. It is now retesting its breakout from a bullish inverse head-and-shoulders pattern at $140, which coincides with the 21-day exponential moving average. That level also aligns with a former double-bottom-with-handle breakout from Sept. 8, reinforcing its significance. An entry near this area makes sense, with a potential move toward $170 in the second half of the year, roughly 21% upside from current levels. The bullish thesis remains intact above $133.

NetEase closed at $141.55 Wednesday.

Hotel operator H World Group is higher by 60% since the start of 2025 and carries a dividend yield of 3.5%. It has moved higher 16 of the last 22 weeks and added another 5% this week already. It is always good to see peers doing well and Atour Lifestyle Holdings is one example.

Since August, the stock has clearly outperformed the FXI and that relative strength appears poised to continue. The uptrend has been supported by strong volume, with the stock consistently respecting its 21-day exponential moving average. Earlier, it broke above a double-bottom with handle pivot near $35 in August and a bull flag in October. More recently, the shares cleared another bull flag pivot at $49, setting the stage for a potential move toward $60, about 20% upside from current levels. The bullish case remains intact above $47.

H World Group closed at $49.80 Wednesday.

With selective Chinese stocks showing technical resilience, 2026 looks set to reward disciplined investors who focus on quality names and relative strength in the region.

Doug Busch is the senior technical analyst at Barron's Investor Circle . His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

2025 was characterised by uncertainty and divergence as geopolitics, tariffs and conflict gripped global markets.

This year may be more of the same. Investment bank CLSA said it expects "resilience and rotation" in 2026 and named the defensive stocks and countercyclical plays it favors.

In its "Global Themes Redux" report released on Monday, January 5, the bank said its analysts broadly retain their "optimistic outlook on the continuation of the AI rally; however, debate on potential AI trade exhaustion has begun to emerge, leading investors to revisit neglected markets such as Indonesia and India."

AI dominated conversations in 2025 and drove consecutive rallies and sell-offs but also fueled concerns of a bubble.

The year also saw investors rotate out of US equities and into emerging markets and Europe, and move money to safe havens such as gold and silver.

Joe Liew, CLSA's Malaysia head of research, named the consumer sector as a "defensive shelter to investors amid macroeconomic uncertainty."

The investment bank noted that "ongoing fiscal support and macro tailwinds could collectively lift consumer spending power."

Consumer staples giant Nestle Malaysia Berhad and home improvement retailer MR D.I.Y. Group are among Liew's top picks.

Recovering consumer demand in China remains centre stage, the reported added. CLSA's Elsie Sheng tipped the baijiu sector, a drinks category for spirits made with Chinese grain, for a potential rebound as demand stabilises.

"[Sheng] suggests watching for a turnaround in high-end consumption and countercyclical plays," the report said.

Her top consumer picks include bottled water and soft drinks company Nongfu Spring, baijiu brand Wuliangye and luxury goods conglomerate LVMH.

Sports equipment company Anta Sports, outdoor clothing retailer Bosideng and athletic footwear name Yue Yuen are also among those to watch, per the report.

Nongfu Spring is benefiting from a revival in sales momentum for packaged water, prompting Morningstar analyst Jacky Tsang to raise his 2025-2026 net profit estimates by 3%-5%. He expects the company to gain market share in the segment, supported by its distribution network and channel partnerships. Tsang forecasts double-digit growth in non-water beverages for 2025. Despite intense market competition due to delivery-platform subsidies, Nongfu Spring is projected to deliver 20% on-year sales growth for 2H in its ready-to-drink tea segment on strong product differentiation and channel expansion, he adds. Morningstar raises its fair value estimate on the stock to HK$41.50 from HK$40.00, and notes the shares appear overvalued. The stock last closed at HK$48.18. (jason.chau@wsj.com)

Chinese tea-shop operators are likely to further consolidate next year, say HSBC analysts Lina Yan and Yimin Wang in a note. Delivery subsidies have started to be phased out since September as China's delivery price war eases, they say. Sector leaders Mixue Group and Guming have superior unit economics over peers, which could fuel store expansion and allow them to offset the lack of delivery subsidies through menu tweaks, say the analysts. HSBC upgrades its rating on Mixue to buy from hold, and raises its target to HK$499.70 from HK$494.30. The bank retains a buy rating on Guming and lifts its target price to HK$36.60 from HK$34.30. Mixue closed 0.5% lower to HK$408.60, while Guming fell 2.2% to HK$24.30.(megan.cheah@wsj.com)

Chinese tea-shop operators are likely to further consolidate next year, say HSBC analysts Lina Yan and Yimin Wang in a note. Delivery subsidies have started to be phased out since September as China's delivery price war eases, they say. Sector leaders Mixue Group and Guming have superior unit economics over peers, which could fuel store expansion and allow them to offset the lack of delivery subsidies through menu tweaks, say the analysts. HSBC upgrades its rating on Mixue to buy from hold, and raises its target to HK$499.70 from HK$494.30. The bank retains a buy rating on Guming and lifts its target price to HK$36.60 from HK$34.30. Mixue closed 0.5% lower to HK$408.60, while Guming fell 2.2% to HK$24.30.(megan.cheah@wsj.com)