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European Luxury Stocks Slide on China Stagflation Concerns

Consumers. Getty Images
Commuters in Hong Kong. Getty Images (d3sign)

European luxury stocks were the top decliners in London, Paris and Milan on Wednesday after data showed China’s factory inflation jumped in October, heightening stagflation concerns in the country, a top buyer of high-end products.

Renewed concerns over the impact of a fresh wave of Covid-19 infections in Asia overshadowed better than expected third-quarter results for Ferragamo, putting its shares on course for their biggest daily drop since June 2020, down 6 percent.

Shares in Kering, Hermes, Moncler , LVMH, and Burberry fell between 2 percent and 3 percent, underperforming the broader European market, with the pan European index flat by 1400 GMT.

China’s factory gate inflation hit a 26-year high in October, squeezing profit margins for producers and boosting growth concerns in the world’s second-largest economy.

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Neil Wilson, chief market analyst at Markets.com, said rising inflation coupled with weakening Chinese import figures earlier this week were “suggestive of slower domestic demand” for European luxury brands.

Demand for high-end products in China is the main driver for the sector, accounting for a third of European luxury goods makers’ sales in 2019 and 28 percent in 2020, according to UBS analysts.

The European luxury sector slumped 15 percent from August to October after China announced plans to redistribute wealth, interrupting a whopping 140 percent rise from March 2020 to August 2021.

The sector had recovered almost all of its summer loss since October, with analysts saying strong earnings were supporting the shares.

Economic growth in China is set to slow further in the December quarter from one-year lows set in the previous three months.

Analysts said a mix of rising COVID-19 cases in Asia and risks around developer China Evergrande Group’s debt crisis could affect growth in China, further limiting earnings momentum for some luxury companies.

Goldman Sachs this week cut its forecasts for global luxury industry sales growth in 2022 by more than 33 percent to 9 percent and 2023 estimates by almost 40 percent to 7 percent amid global economic growth uncertainty.

Reporting by Joice Alves, additional reporting Danilo Masoni; Editing by Saikat Chatterjee and Jan Harvey

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Learn more:

How Concerned Should Fashion Be About Chinese Stagflation?

China’s producer price inflation has been impacting the cost of sourcing. Now, fashion brands are also bracing for broader economic pressures that may lead consumers to tighten their belts.

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