Fri, Oct 12, 2018 - Page 11 News List

Chinese customs blamed as luxury stocks tumble

LOUIS VUITTON, TIFFANY:Guotai Junan analyst Terry Hong said that luxury brand shares are usually hit the most as investors overreact to consumption in China

Bloomberg

Chinese border guards searching travelers’ suitcases for undeclared Louis Vuitton bags, Gucci loafers and Tiffany necklaces are giving luxury-goods makers their biggest scare in years.

Shares of some of the biggest brands, from Prada SpA to Shiseido Co, tumbled across the globe on signs that Chinese officials are cracking down on travelers returning from places like Paris, London and Tokyo loaded with high-end merchandise.

The stricter scrutiny is adding to fears of a slowdown in spending by Chinese consumers, who account for two-thirds of the luxury market’s growth. Luxury investors were already skittish, as the effects of the US-China trade war threaten a three-year spending boom.

“Spending on luxury goods by traveling Chinese shoppers in overseas markets could slide on concerns of increased scrutiny by customs authorities,” Bloomberg Intelligence analyst Catherine Lim said yesterday. “This may hurt sales in country of origin for branded goods in popular categories such as cosmetics and bags.”

Shares of Louis Vuitton owner LVMH yesterday extended losses for a second day, losing as much as 3 percent after tumbling the most since 2008 the previous day.

Gucci owner Kering SA dropped as much as 4.3 percent. Rivals Tiffany & Co, Michael Kors Holdings Ltd and Coach owner Tapestry Inc were also routed on Wednesday.

The sell-off spread to Asia yesterday. Prada tumbled 10.5 percent in Hong Kong, its biggest drop in more than a year. Japanese cosmetics company Shiseido slid 6.7 percent for its largest decline since February. In South Korea, LG Household & Health Care Ltd and Amorepacific Corp tumbled more than 6.8 percent.

Terry Hong (洪學宇), an analyst at Guotai Junan Securities Co (國泰君安證券) in Shanghai, played down the significance of the border crackdown, noting that such actions have been happening over the past two years.

The broader global market sell-off and concerns over China’s slowing economy are also affecting the sector. The tariff spat with the US is dragging on China’s growth, with factory activity in retreat and the yuan sliding.

“The luxury brand shares are usually hit the most amid the depressed sentiment over the slowdown in Chinese consumption,” Hong said. “Investors are likely overreacting on negative news when the market is weak.”

China’s General Administration of Customs did not immediately respond to a faxed request for comment on tightened security checks on travelers.

Chinese Ministry of Foreign Affairs spokesman Lu Kang (陸慷) said he was not aware of any crackdown on luxury goods and would need to look into it when asked about Guiony’s remark at a briefing with reporters.

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