🦾 Biotech beat tech

What’s going on here?

China’s economic update for May might’ve been a mixed bag, but at least retail sales were bulky enough to fill a tote of their own.

What does this mean?

🛍 Better-than-expected retail sales were China’s star stat: they increased by the most since late 2023. That was partly down to an online shopping festival landing earlier in the year than usual, bringing some spending forward. And tempted by targeted government subsidies, shoppers spent 53% more on household electronics this May than last – a record-breaking uptick.

🤷 China can’t be quite as braggadocious about the industrial sector’s output. While it did move in the right direction, that growth was just okay – likely due to lower demand from overseas.

🇨🇳 Inflation stuck just below zero and house prices stayed on the slide, while the unemployment rate improved slightly.

➡️ All in all, May’s figures suggest that China’s economy might hit the government’s 5% growth target this year.

Why should I care?

For markets: It’s not all about the flashy future.

Investors wax lyrical about Chinese tech firms’… uh, tech. The sector’s been quite literally giving America a run for its money on the AI front. Plus, Alibaba, JD.com, and Meituan are more than just tech companies: they’re digital storefronts, too. Now, China’s shoppers have been scrimping for the last few years – but if they open up their wallets, those companies could boast both big AI potential and good, old-fashioned revenue. And that might just make their stocks too attractive to ignore.

Zooming out: Cue the happy dance.

When shoppers start spending more, firms tend to find some extra cash in the office couch cushions and use it to increase their marketing budgets. TikTok’s parent company, ByteDance, will sure be hoping that spending is coming. The firm’s latest AI ad tool lets brands make slick videos from a few words or pictures, saving them the big production fees of traditional marketing campaigns.

What’s going on here?

Investors won’t need a spoonful of sugar to help this medicine go down: Chinese biotech stocks have trumped the country’s tech ones this year.

What does this mean?

📈 China’s Hang Seng Biotech Index has risen over 60% this year. That’s big: an index tracking the country’s popular tech sector saw a small-by-comparison 22% uptick in the same time.

💸 This is no medical mystery. The government has long been rolling out supportive policies and investing in the industry with surgical precision. Plus, many of China’s smartest scientists have returned home from the US recently – partly a result of the two countries’ strained relationship. The industry hasn’t felt the heat from tariffs, either: biotech companies rely more on domestic lab work than shipped goods.

🤝 Two American firms signed huge deals in China this year, too. Pfizer spent $1.25 billion on rights to a Chinese cancer drug, and Bristol-Myers signed a multi-billion-dollar agreement linked to another treatment developed in the country.

Why should I care?

For markets: Talk about a fast-acting remedy.

Chinese drugmakers can get medicines to market faster than American and European rivals, thanks to the country’s more flexible regulatory environment. That might help explain why China’s biotech firms are racking up clinical trials and new patents, while US ones are downsizing labs and laying off staff.

The bigger picture: America’s losing investors’ attention.

Many investors have pulled out of expensive and volatile American stocks lately, eager to bank a profit before the next market selloff. Buzz-worthy Chinese stocks are cheaper than US ones right now, on average – and with the US dollar weakening, foreign assets in general appear more attractive. All the more reason to look at China’s biotech firms: their growth is based on medical innovation rather than macro guesswork. Those drugmakers just aren’t really affected by things like the Federal Reserve’s interest rate decisions, which means potential insulation for your portfolio.