China wants to redistribute wealth, Louis Vuitton and Hermes are already suffering

After coming out against private education companies and technology tycoons as part of re-intervention moves, the question arises as to whether China’s next victim will be the Birkin cases.
Read more in Calcalist: President of China: “We must take care of the redistribution of wealth in our country”China: Tight supervision of technology and monopoly industries will continue for another 5 years After technology and education, China may curb the health sector While the Communist Party of China has allowed some of its citizens to get rich, it now intends to prioritize “Prosperity for everyone”, So according to a council led by the president, which has hinted that regulation on income and the distribution of wealth may be the next move on the table.
3 View the gallery Xi Jinping President of ChinaXi Jinping President of ChinaChinese President Xi Jinping. Has come out against the sector in the past (Xinhua)
Those words have been enough to shave off 61.7 billion euros, or almost 10%, of the aggregate market value of the luxury groups LVMH, Hermes, Kering, Richmont and Barbary since the announcement was made on 17 August.

“Do not transmit elitism”

China is the leading growth engine of the luxury sector, and the corona plague has even accelerated this trend significantly. Expenditure on luxury jewelry and clothing was reimbursed to China, due to travel restrictions that do not allow Chinese to fly for shopping in Milan or Paris. % In 2019, according to data from the consulting firm Jeffries. A small group of ultra-rich people – Jeffries estimates their number at about 110,000 who spend more than $ 100,000 a year on fashion and jewelry – account for nearly a quarter of all luxury sales to Chinese consumers. If they feel that their wealth demonstration will become President Xi’s taboo in China, the industry is likely to feel a slowdown soon. Meanwhile, executives at Europe’s leading luxury companies are still trying to figure out what might happen and whether they should act. Jesus Wang, a London-based consultant whose agency Half A World helps luxury brands expand in China, receives many inquiries from concerned customers. “I tell them that the situation may not change dramatically right away, but for a while, very rich people, CEO”Leading seafarers and senior government officials will surely be more careful in choosing the items they wear or display in public”, she said. “It may be right for luxury brands to download a profile for now. They may consider a recession of campaigns they plan for the coming fall and winter so as not to convey exclusivity or elitism”Wong added that Shai’s announcements may lead to a shift to more modest clothing items, without the bling and prestigious logos that are often popular in China.
3 View the gallery China Louis VuittonChina Louis Vuitton Exhibition of Louis Vuitton Items, Bohan. “The market is expected to enter a period of instability”
(Getty Images)
The recent escape from luxury stocks has interrupted an upward trend that has jumped the market value of these companies to all-time highs. The sector trades at a premium of 90% compared to the European MSCI index, compared to an average of 50% historically, according to UBS Bank.”B. Continue on the journey of waste. In the last 18 months, the leading brands, including Louis Vuitton, Hermes and Chanel, have embarked on a steady path of recovery, while smaller fashion houses are still struggling. However, there are investors who have started betting against the sector. The number of Hermes shares sold in short rose 0.9% last Thursday, compared to 0.7% in mid-August, according to IHS Market Data, while Richmont climbed 1.4% from 1.1% in mid-month. At the same time, a negligible change was recorded in the interest in the short sale of LVMH or Kering shares.”The Chinese opportunity is clearly still greater than the risks, and if it were not, you would not want to be in the realm of luxury at all”, Noted Flavio Carda, an analyst at Jeffries. “What is happening now is a lot of uncertainty and that is what is causing nervousness among investors”.
3 View the gallery Info China is the world leader in the luxury goods marketInfo China is the world leader in the luxury goods marketChina is the world leader in the luxury goods market
At a press conference in Beijing last Thursday, Han Wenkshiu, a senior economic official, sought to reassure the public that the push towards “Prosperity for the masses” Does not mean that China “Rob the rich to help the poor”.

Inheritance tax will have a greater impact

Analysts say China may raise taxes on luxury goods, narrow the steps of network influencers displaying luxury brands, impose restrictions on advertising or increase border controls on daigou, meaning the same professional buyers who travel abroad”To purchase luxury items for Chinese. All of these moves could weaken the demand for luxury. Another concern is that the government will put pressure on companies to reduce their price differentials. Brands sometimes charge 25% or 50% more for their products in China compared to Europe – which has led luxury consumers to spend large sums on the products abroad”To, before the plague. A 29-year-old consumer in Chengdu, who sometimes buys luxury items, said that this change in government approach “Not influencing” About the rich consumers she knows. However, policies like new inheritance tax or higher taxation of investments or property, will affect the rich. Katie Sham, a consultant at Oliver Weiman in Hong Kong, said the top 5% to 10% of Chinese consumers are likely to be affected. “This is definitely not good news for the actresses in the luxury sector”China’s policy has hurt the sector in the past. In 2012-2014, the beginning of Shai’s anti-corruption campaign, Beijing went against the practice of giving gifts to government officials in exchange for benefits. Sales of luxury items and alcoholic beverages grew in response at a slower pace in that period compared to previous years, according to analysts. “If Shai does not speak and act on the issue in the coming months, we will see a recovery in stock prices, but the deterrent will remain”, Noted Karda from Jeffries. “If he continues to talk about it or announce certain policy measures, the market is likely to enter a period of instability”.

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