China Tech Crackdown Dampens Luxury Boom

Index Moves is our monthly analysis of the biggest climbs and drops on The Jing Daily KraneShares China Global Luxury Index, which tracks the global market performance of the luxury sector. The Index relies on the Jing Daily Global Luxury Score and Jing Daily Brand Awareness in China Score in addition to fluctuations in market cap and stock closing price. Below, we highlight luxury brand moves for the month ending July 31, 2021. For the first time since China emerged from the COVID-19 pandemic over 18 months ago, the Jing Daily KraneShares China Global Luxury Index has spent the month in steady decline. Our ranking of the 40 largest global luxury companies and their exposure to China started July at 358.33 basis points — 50 percent above its pre-pandemic high. But by July 31, it had sunk to 346.88, dropping 3.3 percent. This decline, however, is nowhere near the 23-percent plummet seen in March 2020, when the global impact of the coronavirus began to make its mark. Instead, it was a small and steady decrease, though one that raises big questions about the recent rise of luxury stocks and the resilience of the Chinese luxury consumer. When the Jing Daily KraneShares China Global Luxury Index hit a record 358.75 on June 25, it was unexpected. But by all accounts, the momentum should not have stopped there. In July, COVID-19 restrictions were finally relaxed throughout much of Europe, allowing shoppers to return to stores. Travel began to open up, which should open up a spending spree in Europe as tourists flock to luxury boutiques this time of year. But in China, sentiment is moving in the other direction. The spread of the Delta variant has brought new restrictions to several large cities, including Beijing, Wuhan, and Nanjing. After the territory reported its first coronavirus cases in 16 months, authorities have ordered the mass testing of everyone in Macau, a popular destination for wealthy Chinese. And in Shanghai, three major trade events — the Yarn Expo, Intertextile Shanghai Apparel Fabrics, and Intertextile Shanghai Home Textiles — were postponed from late August to October due to concerns over the new outbreaks. But the increased restrictions are not the main reason why the Jing Daily Index fell throughout July. The bigger impact has come from the government’s increasing scrutiny of listed tech companies, which has hammered shares of Chinese firms listed both domestically and on exchanges in Hong Kong and New York. Following Didi’s 4.4 billion IPO in New York on June 30, regulators launched an investigation into its data security practices, halted new downloads of its app, and launched a growing inquiry into overseas listings. All of these actions have effectively halted IPO plans for many Chinese tech firms. Specific sectors, ranging from online education and gaming to food delivery, have also been singled out. Alibaba Group, Tencent Holdings, and Pinduoduo (each part of the Jing Daily Index) fell in rank and share price throughout July. Spooked by the government’s widening crackdown, Western and Chinese investors alike have pulled their money out of Chinese stocks, regardless of whether they are currently subject to government probes, as it appears that just about any business could become the next target. JD.com, iQiyi, and Li Ning Co all dropped on the Jing Daily Index, with their falling share prices dragging down the Index as a whole. In contrast, US tech stocks are doing much better. Apple kept its first-place ranking on the Jing Daily Index throughout July as many investors looked to US tech as a relative haven compared to its Chinese counterparts. Also holding its position was Hermès, which spent the entire month in second place as investors anticipated the July 30 release of its results for the first half of 2021. The French luxury house reported that revenue was up 77 percent year-on-year and 33 percent above the same period in 2019, with CEO Axel Dumas noting the results were “driven by a strong performance in mainland China.” But as that “strong performance” weakens, Western and Chinese luxury brands can expect less rosy results for the second half of the year. In the meantime, the crackdown on Chinese tech stocks shows no sign of quieting down.

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China Tech Crackdown Dampens Luxury Boom