Global Chinese Consumer Leaves No Winners in Luxury Stocks

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China Slowdown, Hong Kong's Luxury Market Squeeze

The rout in European luxury-goods makers is sparing nobody -- regardless of how much they sell in China.

Burberry Group Plc and Hugo Boss AG plunged more than 7 percent in two days after China devalued its currency, even though the companies have some of the smallest sales exposure to the yuan among luxury makers, according to Credit Suisse Group AG. That’s because when taking into account purchases by Chinese travelers abroad, most of the companies are just as reliant on the nation, Sanford C. Bernstein says.

“It’s at these times that you understand the extent to which the market of luxury goods is exposed to China and how much it depends on the decisions of the Chinese government,” said Mario Ortelli, an analyst at Bernstein in London.

Looking at individual companies’ sales in the mainland isn’t a reliable gauge to determine which shares are the most at risk. Chinese consumers now do more than half of their spending abroad, according to Bank of America Corp.

Burberry gets 11 percent of its revenue in yuan, compared with 7 percent for Hugo Boss, according to estimates by Credit Suisse. Swatch Group AG, which has lost 8.8 percent in two days, has the biggest exposure, with 23 percent. LVMH Moet Hennessy Louis Vuitton SE and Salvatore Ferragamo SpA sank more than 10 percent in two days.

All those shares rebounded on Thursday, along with the region’s equities.

Exports to China

The Stoxx Europe 600 Index tumbled 2.7 percent on Wednesday, the most since October and compared with a gain in the Standard & Poor’s 500 Index. That’s partly because the region sells more to China than the U.S.: The European Union had almost 165 billion euros ($184 billion) worth of exports to the country last year, compared with $124 billion for the U.S. to China, according to the European Commission and the U.S. Census Bureau.

For Berenberg Bank, benefits from Chinese travelers’ spending on the back of a weak euro will probably offset the effect of the yuan’s decline. The potential boost to the Chinese economy from export growth may also increase local demand from Chinese consumers, the Berenberg report said.

Rene Weber, an analyst at Bank Vontobel AG in Zurich, disagrees, saying burdensome import taxes in China will limit increases in local sales. But the biggest concern for luxury companies is the slowdown of the nation’s economy, he said.

“You have a lot of sales in China, and if you see a strong decline in the economy, it becomes an issue for these companies,” Weber said. “With a deteriorating economy, people cut spending at home and abroad.”

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