Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

China Consumer staples / Thematic (Sector/Industry)

We don't expect China's beverage market to reaccelerate to the levels it once enjoyed. Although the country's consumption of soft drinks and alcoholic beverages will likely continue to rise at a healthy clip, offering outsize gains versus other, more-developed nations, we expect slowing gross domestic product growth, worsening demographics, and embedded cultural practices to cause much more muted gains over the next five years than many investors hope.We anticipate soft-drink and beer volume growth to trail GDP gains. That said, we see pockets of opportunity for manufacturers as further premiumization leads to improving price points, profitability, and returns on capital. In particular, we think investors should keep international beverage behemoths #<a href="https://www.smartkarma.com/entities/979" target="_blank" data-smartkarma-citation="entities:979:1">Coca Cola Co/The (KO US)</a> and <a href="https://www.smartkarma.com/entities/865" target="_blank" data-smartkarma-citation="entities:865:1">Anheuser Busch Inbev Sa/Nv (ABI BB)</a> on their watch lists, given solid brand intangible assets, national distribution networks, and cost advantages. Conversely, we think local brewer <a href="https://www.smartkarma.com/entities/1296" target="_blank" data-smartkarma-citation="entities:1296:1">Tsingtao Brewery Co Ltd H (168 HK)</a> looks overvalued.Analysts: Adam Fleck, CFA &amp; team

We don't expect China's beverage market to reaccelerate to the levels it once enjoyed. Although the country's consumption of soft drinks and alcoholic beverages will likely continue to rise at a healthy clip, offering outsize gains versus other, more-developed nations, we expect slowing gross domestic product growth, worsening demographics, and embedded cultural practices to cause much more muted gains over the next five years than many investors hope.We anticipate soft-drink and beer volume growth to trail GDP gains. That said, we see pockets of opportunity for manufacturers as further premiumization leads to improving price points, profitability, and returns on capital. In particular, we think investors should keep international beverage behemoths #Coca Cola Co/The (KO US) and Anheuser Busch Inbev Sa/Nv (ABI BB) on their watch lists, given solid brand intangible assets, national distribution networks, and cost advantages. Conversely, we think local brewer Tsingtao Brewery Co Ltd H (168 HK) looks overvalued.Analysts: Adam Fleck, CFA &amp; team

Beijing Yanjing Brewery Co, Ltd. (000729 CH)

Xinjiang Guanng Fruit & Antler Gp (600251 CH)

Xinjiang Tecon Anml Hsbndry Bio Tchnlgy (002100 CH)

Yunnan Salt & Chemical Industry Co., (002053 CH)

Inner Mongolia Yili Industrial Group (A) (600887 CH)

Beijing Dabeinong Technology Grp (002385 CH)

Better Life Comm Chain Share Co (002251 CH)

Jiangsu Hengshun Vinegar Ind Co, Ltd. (600305 CH)

Beijing Shunxin Agriculture A (000860 CH)

Anhui Gujing Distillery Company (200596 CH)

Shanghai Feilo Acoustics Co., (600651 CH)

Shenzhen Agricultural Products Co, Ltd. (000061 CH)

Shanxi Xinghuacun Fen Wine Factory Co (600809 CH)

Zhejiang Guyuelongshan Shaoxing Wine Co (600059 CH)

Guilin Layn Natural Ingredients (002166 CH)

Guangzhou Zhujiang Brewery Co (002461 CH)

Foshan Haitian Flavouring & Food (603288 CH)

Asia - Potash International In (000893 CH)

Henan Lianhua Gourmet Powder Co., (600186 CH)

Yantai Shuangta Food Co., Ltd (002481 CH)

Henan Shuanghui Investment & Development (000895 CH)

Wens Foodstuff Group Co., Ltd. (300498 CH)

China Unlikely to Quench Beverage Firms' Thirst for Growth