(Bloomberg) -- Jefferies Financial Group Inc. said half the allocation into China equities over the next five years should go into consumer stocks given the government’s focus on social stability.

“50% should at least be devoted to consumption, with 30% to productivity and measures to offset the drag from an aging of society,” strategist Sean Darby wrote in a note dated Oct. 31. The outcome of the nation’s Party Congress also suggests that “there is a conscious effort to make a trade-off away from short-term economic growth stimulus to socio-political stability,” he added.

Jefferies’ bullishness on the Chinese consumer segment is in contrast to data showing that retail sales have weakened and that unemployment is on the rise. The nation’s equity markets have also retreated due to a gamut of concerns including aggressive Covid policies, the ongoing property crisis and tensions with the West. 

All the troubles have erased more than $45 trillion in market value from Chinese equities since a peak in February 2021. The selloff got a fresh boost last week after President Xi Jinping doubled down on his policies by removing rivals and installing loyalists in a key leadership reshuffle.

The mainland gauges for consumer staples and discretionary related stocks have lost more than 30% each this year, in line with a 28% drop in the CSI 300 benchmark. 

Darby said technology stocks also look appealing but their risk-reward may have to rise further to reflect “the subtleties between the state’s need for security and the economy’s desire for profits.”

READ: China Investors to Weigh Common Prosperity vs. Near-Term Growth

©2022 Bloomberg L.P.