Shanghai has been under lockdown for days. Last Sunday, the local health authorities recorded 26,000 new cases and are now watching with concern the evolution of the situation in Guangzhou, the huge Chinese industrial hub with more than 18 million inhabitants.
This situation had a strong impact on the stock market at the beginning of the week, particularly in the luxury goods sector, for which Asia represents a large part of turnover. On the Paris stock exchange, the fashion giants opened the week in slight difficulty: Hermès, which in 2021 had achieved 47% of its global turnover in Asia, lost two points and Kering opened at -1.36%. In 2021, 21% of the turnover of Pinault's empire was known to come from the Chinese market. On the Milan Stock Exchange, the Salvatore Ferragamo and Brunello Cucinelli brands also fell sharply. The negative opening on Milan's Piazza Affari also concerns Moncler, which last year saw Asia provide 49% of its 1.82 billion turnover.
The start of the week, which was rather difficult for the luxury goods sector, was offset somewhat by the publication of LVMH's quarterly sales: the world's number one luxury goods company announced on Tuesday that it had achieved sales of 18 billion euros in the first quarter, a jump of 29% compared to the same period last year. The company continues to build on its record-breaking 2021 figures. While all sectors of Bernard Arnault's empire continue to see growth, the momentum is particularly strong in fashion and leather goods. Despite Covid 19 in China and the conflict in Ukraine, LVMH's performance remains remarkable. This exceptional quarter saw the reopening of Christian Dior's Paris headquarters and the strong growth of the Celine brand.
Despite this good news, the luxury world as a whole will have to continue to contend with declining investor sentiment as measured by the Sentix Investor Confidence Index, which provides a six-month economic outlook for the eurozone. Its data is based on surveys of 2,800 investors. A result above zero indicates optimistic sentiment; a result below zero means a loss of confidence. Today, the index has stabilised at -18. This tells us that confidence in the markets has collapsed to its lowest level since mid-2020 in the eurozone.
The conflict between the Kremlin and Ukraine, the new sanctions against Russia envisaged by the European authorities, the Covid which is paralysing the biggest luxury market for Western brands - Shanghai - are undermining confidence and adding to the fears already linked to inflation risks. This could leave luxury groups vulnerable to a halt in growth and social and economic instability in China. Moreover, the lockdown in Shanghai seems to be the result not only of a health emergency, but also of the government's desire to "control" the westernmost city of the Asian powerhouse, where criticism of the government is still very much alive.
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