LONDON, Sept 20 — China’s stuttering economic recovery and plans to redistribute wealth threaten to derail Europe’s booming luxury sector, leaving many investors apprehensive about buying the stocks even after their sharp August sell-off.
Several analysts used the slide to recommend investors bet that luxury stocks’ heady resurgence from Covid-19, which saw the European sector rise 140 per cent from March 2020 to its August 12 peak, would resume. Some analysts warn that the appeal of companies such as Hermes, whose Birkin handbags sell for US$10,000-plus and often have waiting lists, will take a serious hit if China pushes on with its plan to tax the rich and implement a campaign against tax avoidance.
Kepler estimated higher taxes for the rich could lead to a decline of between 10 to 25 per cent in sales in China, hitting global luxury demand, which is unlikely to be offset elsewhere. That could lead to sector stagnation for one to two years, Kepler added.Aneta Wynimko, portfolio manager at Fidelity International, said her fund retains conviction in European luxury companies but is monitoring developments in China carefully, as they “are difficult to predict as many recent events have shown”.