The rise of China's consumer may be one of the country's most important trends over the last decade, but the mainland's retailers aren't the way to play on it, Pimco said.
"A weakened macro environment, coupled with curbs on spending by government bureaucrats, has hit a range of consumer businesses and, in some cases, forced a reassessment of expansion plans," said Richard Flax, an emerging market equity analyst at Pimco, in a note. "Mass retailers, which face oversupply and low pricing power, are likely to continue to struggle," he said.
He noted China's economic growth has fallen from 9.8 percent in the fourth quarter of 2010, to around 7.8 percent in this year's third quarter, denting consumer confidence and weighing on urban household income growth, which has fallen three percentage points over the past 12 months to just over 9 percent.
"Compounding the impact of slowing income growth, the government has moved to curb spending by bureaucrats by restricting dining, travel and gift-buying," he said, noting spirits prices are falling and department store operators are seeing declines in same-store sales.