Have the Chinese fallen out of love with luxury brands? The answer is a fairly emphatic no from UBS, which became the second major bank this week to suggest concerns about ebbing spending on luxury goods in the Asian economy are overdone.
Analysts at the bank raised their targets on a number of fashion houses whose growth in recent years has been propelled by China. Kering, the owner of Gucci, for example, was raised to buy from neutral. The company’s shares have sunk 25 per cent since reaching a recent high of €197 in March last year. They finished 5.7 per cent higher at €150.5 in Paris.
British fashion label Burberry, whose shares have crumbled 40 per cent from a recent high in February, 2015, also won an upgrade from neutral to buy. Burberry’s shares closed 1.6 per cent stronger at £11. 39.
Appetite for luxury in China have been dented both by a government crackdown on corruption as well as the economy’s retreat from the 10 per cent growth that companies become accustomed to for much of the last decade.
However, UBS says it’s own survey of just over 1,000 Chinese consumers of luxury goods suggests demand has emerged relatively unscathed from the wild swings in the country’s stock market. Its report says:
Taken at face value this consumer sentiment from our survey is highly supportive for the outlook on Chinese luxury consumption. It also implies that the heavy stock market decline in 2015 has not had any lasting impact on sentiment, which is reassuring following the volatility at the start of this year.
However, UBS estimate that the growth in Chinese spending on luxury goods has slowed from an annual rate of about 12 per cent to 5 per cent last year. And the bank isn’t uniformly bullish on European luxury companies. Its ratings on Hugo Boss was cut from buy to neutral, while Salvatore Ferragamo was downgraded to sell from neutral.
Courtesy FT.com