Shares in global luxury goods groups rise after China further eases some COVID-19 restrictions

Shares in global luxury goods groups rise after China further eases some COVID-19 restrictions

Shares in global luxury goods groups, which rely heavily on Chinese shoppers, rose on Tuesday after Beijing further relaxed some COVID restrictions that had been in place for the past three years, fuelling hopes of a full-blown reopening soon.

China will stop requiring inbound travellers to go into quarantine starting from Jan. 8, the National Health Commission said on Monday in a major step toward easing curbs on its borders, which have been largely shut since 2020.

News of the loosening lifted stock markets worldwide, with luxury shares in particular benefiting. Shares in LVMH, the world’s biggest luxury group and Europe’s No. 1 company by market capitalization, were up 2.7 per cent while Cartier-owner Richemont rose almost 4 per cent.

China, which is gradually moving away from a strict zero-COVID policy that battered its economy, kept consumers indoors and sparked a wave of public discontent, accounts for 21 per cent of the world’s €350-billion luxury goods market, behind North America and Europe.

Before the current slowdown, it had for years been the fastest growing region, with young, urban, middle class professionals powering the luxury market by splashing out on Hermes’ €10,000-plus ($14,384) Birkin handbags and Gucci’s €1,000 fur-lined loafers.

It is expected to become the top market for the industry by 2025 and already generates about 35 per cent of annual sales at Gucci, French group Kering’s star brand; 27 per cent for rival LVMH’s fashion and leather goods division; and 26 per cent for Hermes.

With Europe facing an energy crisis and the U.S. economy also cooling owing to higher interest rates, China is looking to a recovery next year and the luxury world is hoping to take advantage of that.

However, some analysts said investors should not get carried away.

“With infection rates still increasing [in China] it won’t necessarily mean international trade will snap back to prepandemic levels super quickly,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“Recovery may still be slow, particularly given the caution among consumers, and is likely to build in popular holiday shopping destinations regionally first,” she said. “Brands will be gearing up for the return of wealthy, globe-trotting Chinese tourists.”

According to a recent report by the McKinsey consultancy, while non-luxury fashion sales are expected to rise between 2 per cent and 7 per cent in 2023, luxury sales should climb 9 per cent to 14 per cent over the same period.

“China will likely remain a core market for fashion consumption in the long term, with significant untapped opportunities among a customer base whose sentiment for luxury brands in particular is holding strong,” it said.

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