While big questions swirl about China’s macro policy, some sectors are seeing fundamentals shift in their favor. Profits are moving to industrials, consumer discretionary and staples — and away from materials and energy, according to HSBC. That’s based on the firm’s analysis of the roughly 1,700 mainland China-listed companies that have released earnings previews for the first half of the year. A reason for the shift in profits, the report said, is falling producer prices and their widening gap with consumer prices in China. That means upstream businesses are making less money, while costs drop for mid- and downstream companies. Breaking that down further, the HSBC analysts looked for sub-sectors with low inventory levels and strong demand momentum. Their screen found that home appliances, media and software sectors were among those that fit the bill. The Producer Price Index has fallen for nine months straight. The Consumer Price Index slowed to 0% in June. That’s spurred worries of deflation in China and broader sluggishness in the world’s second-largest economy. But the worst may soon be over. The big event of the next seven days is an expected gathering of Chinese leaders, called the Politburo. “Everyone is looking forward to the [meeting] at the end of July,” said Ding Wenjie, investment strategist for global capital investment at China Asset Management Co. That …
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