Global Luxury Sales Expected to Recover as Shanghai Ends Lockdown

by Frank Holmes, CEO, CIO, U.S. Global Investors

Shanghai, the Chinese commercial hub with 26 million residents, ended its two-month citywide pandemic lockdown last week, a sign that the world’s second largest economy may be ready to return to business-as-usual. A reported 90% of stores and restaurants have resumed operations as of last Wednesday, which I believe is very good news for global luxury sales in particular.

As I’ve pointed out before, the Chinese are big buyers of luxury goods, from high-end jewelry to leather goods to fragrances, and the end of Covid-related lockdowns is expected to bring customers back to in-person shopping experiences. The SSE Composite Index, which tracks Shanghai-listed stocks, lagged year-to-date through May 31, along with the S&P Global Luxury Index. I believe equites could rise sharply from here, supported by stronger sales due to Covid restrictions being lifted.

Shanghai's Reopening Could Boost Luxury Good Sales

Partly as a result, the China Manufacturing PMI rose to 49.6 from 47.4 in April. Although this is still under the 50.0 threshold separating factory expansion from contraction, the reading exceeded consensus by 0.6 points. If China’s economy continues to reopen and people return to work, I expect June’s PMI to be above 50.0, which would bode well for economic growth in general.

Health of Chinese Factories Improved in May on Lifting of Some Covid Lockdowns

China Could Be the Biggest Luxury Market Within Three Years

Again, the Chinese love their luxury items. Last year, the country’s luxury market recorded double-digit growth from 2020 levels, putting it on pace to become the world’s number one luxury market by 2025, according to Bain & Co. Luxury’s growth has been closely correlated with the expansion of the middle class as well as China’s transition from a manufacturing-based economy to one that is supported by consumption, similar to the U.S. and other Western, high-income countries.

China Projected to Become the Biggest Luxury Market by 2025

Granted, this projection was made in December 2021, before the latest Covid lockdowns, but the sharp recovery in May’s PMI reading tells me that the lockdowns may have little economic impact over time.

With so much growth projected in China’s luxury market, now may be the time for investors to consider Chinese equities, luxury stocks or both.

 

Copyright © U.S. Global Investors

Total
0
Shares
Previous Article

JD.com Inc. - (JD) - June 9, 2022 (Daily Stock Report)

Next Article

Divergences in the Energy Patch

Related Posts
Read More

David Burrows Discusses Leadership Themes, What The Market Data Is Telling Us, And Asks: Is This A Rally Within An Ongoing Bear Market, Or The Early Days Of A New Bull Market?

David Burrows, President and Chief Strategist at Barometer Capital Management presents his "Barometer Reading" on financial markets, the…
Read More

Picton Mahoney Q3 2022 Investment Review & Outlook: Inflation looks set to fall, the economy is likely to waiver, but stocks may rally

by David Picton and Team, Picton Mahoney Asset Management Copyright © Picton Mahoney Asset Management
Subscribe to AdvisorAnalyst.com notifications
Watch. Listen. Read. Raise your average.