HSBC analysts give up hope of a luxury sales rebound in China

what happened

After its annual Asia trip, HSBC's luxury analysts said hopes for a recovery in Chinese demand have now faded. For three years they had said conditions would improve the following year, but that did not happen. Meetings in Hong Kong, Xiamen and Shanghai offered no timeline or evidence of a revival in luxury spending.

HSBC attributes the weakness partly to the cycle: a weak macro backdrop, a depressed property market, youth unemployment and worries about AI's effect on jobs. It also sees structural causes, including the rise of local brands and the growth of the resale market. The analysts are more optimistic about Korea.

Flavio Cereda, Investment Director at GAM, expects weak third-quarter earnings but thinks most of the valuation compression has already happened, so a modest improvement in growth could drive a meaningful recovery in valuations, particularly for LVMH. Its shares hit a six-year low last week after a miss in fashion and leather goods sales, partly due to weak Chinese demand. The stock trades at about 16 times 12-month forward earnings, the lowest in roughly a decade.

why it matters

For markets, this signals that a luxury recovery in China may take longer, keeping pressure on the sector's largest players. At the same time, the low valuation could draw investors waiting for earnings to stabilise.

market impact

Luxury sector and LVMH: weak Chinese demand pressures earnings expectations and valuations

tags

instruments