China reopening gives leg up to EU luxury brands

Beijing’s zero-Covid policy hit businesses in the mainland as well as others who export to China. China reopening has sparked a rebound in the domestic financial market, and Jupiter Asset Management says the increased mobility and spending could be good for European luxury and consumer goods companies.

China has rapidly removed travel restrictions despite an increase in Covid-19 cases in the country. Thanks to the pent-up demand, Chinese Ministry of Transport is expecting over 2 billion passengers to take trip over the 40-day period of the Lunar New Year.

“The Lunar New Year is also an important time for gift giving. Greater mobility is therefore expected to spark a change in consumption. Chinese household savings increased significantly during the lockdowns in 2022, with estimates that one third of household income was saved over the course of the year,” writes Mark Heslop, Investment Manager for European Equities, Jupiter AM.

The investment management firm talks about the importance of China for European companies, and says that China was the third largest partner of the region for exported goods. Jupiter AM is cautious that a rise in Covid cases may cause supply chain disruptions in the short term but China reopening will help reduce the disruption in production and disruption of goods.

“A particular area of interest for European companies is luxury goods. Chinese consumers made a third of all global personal luxury good sales in pre-Covid 2019, falling to around 18% in 2022, according to Bain and Company research. Europe has by far the highest proportion of the largest luxury goods brands and companies,” adds Heslop.

The asset manager believes the higher savings of Chinese people will be a tailwind for luxury brands’ sales. Premium alcoholic brands are among the top items which could benefit as European companies also dominate this export market to China.

Separately, travel companies in Europe which operate in Asia are likely to benefit as China alone represents 14.5% of global seats flown.

View the complete insight here.