We have recently increased our attention on China due to the recent slowdown and power shortages causing steel production to ease on top of a brewing housing market crisis. These dynamics are happening while China’s government has started a comprehensive crackdown of the technology sector including gaming restrictions encompassing controlling user data, fining companies for using their market power to limit competition, and prohibiting private tutoring companies, which is all driven by the new phrase “Common Prosperity”.
An extension of the “Common Prosperity” seems to also be a cultural reorientation in the Chinese society with authorities in China recently including new regulation for behaviour of celebrities which ensure that they abandon vulgar and kitsch inferior tastes, and consciously oppose the decadent ideas of money worship, hedonism, and extreme individualism. In other words, be less American in personal expression. This focus means that flashing your richness and expensive consumer goods such as expensive cars, fashion, and jewelry is no longer acceptable among celebrities which will directly influence the habits of the wider Chinese population.
This in turn is a key risk for Europe’s luxury makers which have enjoyed a decade of high growth in China’s consumer market with the growing upper class lusting for European luxury goods. Our basket of European luxury brands with the most exposure to China is up 126% since early 2016 compared to only 56% for the STOXX 600. However, the basket is down almost 12% from the peak in June before the recent string of regulation was put in place China including the bigger emphasis on “Common Prosperity”.