Luxury stocks do not care about China’s old economy Luxury stocks do not care about China’s old economy Luxury stocks do not care about China’s old economy

Luxury stocks do not care about China’s old economy

Peter Garnry

Head of Saxo Strats

Summary:  Our luxury theme basket is up 32% over the past year as investors have bet heavily on this part of the equity market to benefit the most from the Chinese reopening. While commodities have not responded the way many investors thought would happen the consumer spending in China has picked up and that change in the Chinese economy seems to what the market correctly captured with its bet on luxury. We also take a look at the longer term risks to luxury and finally we also highlight the green transformation as this theme is the worst performing the past year due to higher interest rates and high electricity prices.

Key points in this equity note:

  1. Luxury is the best performing equity theme basket the past year and the preferred bet on China by global investors
  2. The key risk to luxury is the fragmentation game as it could drive nationalistic policies unfavourable for Western companies in China
  3. The worst performing equity theme basket the past year has been green transformation as electricity as become expensive and interest rates are still high

Is China changing in a way that benefits consumption over commodities?

Take a look at the 1-year performance among our equity theme baskets. It shows a super league of themes consisting of luxury, defence, and construction. The last two themes are about the world fragmenting leading to massive military buildout in Europe and significant investments in infrastructure globally. The third theme mentioned is luxury which has been the most hot equity theme this year up 21% in 2023 and 32% over the past year and a theme we introduced back in February in our introduction note Luxury is a resilient growth industry in the age of inflation. Yesterday, we wrote about Swiss-based luxury company Richemont which is scheduled to report earnings on Friday and expected to sound upbeat on the future given the guidance we have seen from other luxury companies such as LVMH and Hermes.

Why is luxury doing so well given we are getting news after news explaining why the Chinese rebound is weak? The answer deserves length, but today we will provide the short answer. China’s heavy investment-driven economic model is running out of steam and in a fragmentation game China must pivot to become a more consumer oriented economy. This is already happening and this seen in China’s consumer spending figures and results from consumer oriented companies. The high beta of this trend, but also a function of the reopening, is luxury goods and the market has therefore correctly anticipated this change in China betting on those stocks instead of the classic move of getting exposure to resource oriented companies.

The key long-term risk to luxury is geopolitical fragmentation

While luxury stocks are conquering equity markets these days and will continue to deliver strong results in years to come there is a slow-moving underlying risk that has to be appreciated by investors. The fragmentation game that we wrote about in our Q2 Quarterly Outlook is deep at its core about two value systems, liberal democracies and authoritarian states, breaking from their growing dependence during the last period of globalisation. This fragmentation will lead to nationalistic policies in many regions including China and the risk for luxury companies is that China will emphasize national consumer companies including luxury and potentially strengthen its own culture at the expense of “Western culture” linked with the luxury industry.

The green transformation has suffered the most over the past year

While the green transformation theme was the most powerful theme back in 2020 it has been the worst performing theme the past year as higher interest rates have crushed valuations and slowed activity. It is important to acknowledge that the green transformation is a capital intensive transition and thus higher interest rates will make the green transformation more expensive but also slower in terms of its adoption. Key in the green transformation is the electrification of transportation and heating, but one of the key risks in this transformation is our electric grid and this could become a critical bottleneck in the years to come. Read our equity note The little-known risk to the green transformation from last month on this topic.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.