Global luxury sales set to recover as Shanghai ends lockdown
Band Frank Holmes
Shanghai, China’s commercial hub with 26 million people, ended its two-month citywide pandemic shutdown last week in a sign that the world’s second-largest economy may be ready to return to business as usual. According to reports, 90% of stores and restaurants resumed operations last Wednesday, which I believe is very good news for global sales of luxury goods in particular.
As I’ve pointed out before, the Chinese are heavy buyers of luxury goods, from high-end jewelry to leather goods to perfumes, and the end of Covid-related lockdowns should bring customers back to the experiences of purchase in person. The SSE Composite Index, which tracks Shanghai-listed stocks, lagged year-to-date to May 31, as did the S&P Global Luxury Index. I think stocks could rise sharply from here, supported by stronger selling due to the lifting of Covid restrictions.
Partly as a result, the Chinese manufacturing PMI rose to 49.6 from 47.4 in April. While this is still below the 50.0 line separating factory expansion from contraction, the reading topped consensus by 0.6 points. If the Chinese economy continues to reopen and people return to work, I expect the June PMI to be above 50.0, which would bode well for economic growth in general.
China could become the biggest luxury market within three years
Again, the Chinese love their luxury items. Last year, the country’s luxury market saw double-digit growth from 2020 levels, helping it become the world’s top luxury market by 2025, according to Bain & Co. The growth luxury has been closely correlated with the expansion of the middle class. as well as China’s transition from a manufacturing-based economy to a consumer-driven economy, similar to the United States and other high-income Western countries.
Admittedly, this projection was made in December 2021, before the last Covid lockdowns, but the strong recovery in the May PMI reading tells me the lockdowns may have little economic impact over time.
With such growth projected in China’s luxury market, now may be the time for investors to consider Chinese stocks, luxury stocks, or both.
USCOX and USLUX
US Global Investors is pleased to offer investors opportunities in both asset classes.
Our China Region Fund (USCOX) invests in new and existing companies registered and operating in China and the surrounding region, including Taiwan, Korea, Singapore, Indonesia and more. It is one of the fastest growing regions in the world, with a young and prosperous workforce whose incomes can increasingly support a consumption-based lifestyle.
Then there is the Global Luxury Goods Fund (USLUX), which invests in companies around the world involved in the design, manufacture and sale of products and services that are not considered essential but highly sought after by middle to high income consumers.
Originally published by US Global Investors on June 8, 2022.
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Please carefully consider a fund’s investment objectives, risks, charges and expenses. For this and other important information, get a fund prospectus visiting usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. US Global Investors is the investment advisor.
Foreside Fund Services, LLC, Distributor. US Global Investors is the investment advisor.
Investing in mutual funds involved risks. Main loss is possible. Stock markets can be volatile and stock prices can fluctuate in response to industry and other risks, as described in the fund’s prospectus. Investing in foreign and emerging markets involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risks.
Companies in the consumer discretionary sector are exposed to risks associated with fluctuations in the performance of domestic and international economies, changes in interest rates, increased competition and consumer confidence.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be suitable for all investors. The SSE Composite Index, also known as the SSE Index, is a stock market index of all stocks traded on the Shanghai Stock Exchange.
The S&P Global Luxury Index is comprised of 80 of the largest publicly traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific investment requirements.
The Purchasing Managers Index (PMI) is an index synthesized and compiled from the results of the monthly survey of corporate purchasing managers.
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