China’s Economic Recovery: 3 Key Sectors To Watch

Chinese economic data blew expectations out of the water this week, reflecting a strong comeback for the Asian giant as it finally emerges from the world’s most restrictive pandemic-era lockdown. The positive results are constructive for industries and sectors across the board, but I’ll be closely watching the global luxury goods market, air passenger demand and container shipping in particular.

In the first quarter, China’s gross domestic product (GDP) grew a healthy 4.5% year-over-year, exceeding consensus. Retail sales in March jumped 10.6% year-over-year, a pace unseen in two years. As a result, the Citi China Economic Surprise Index, which measures data surprises relative to market expectations, hit a 17-year high. UBS Group raised its 2023 GDP forecast to “at least” 5.7%, with the bank’s Patricia Lui writing that “consumption will remain the main driver of China’s recovery this year.”

Chinese Economic Data Blows Past Forecasts

European Luxury Retailers Bracing For The Return Of China’s Luxury Shoppers

Again, this is all very constructive for European luxury stocks. Before the pandemic, Chinese consumers were the leading nationality for tax-free luxury shopping worldwide, according to Swiss-based tourism shopping firm Global Blue. A whopping one-third of global luxury sales, or 93 billion euros ($102 billion), were made by Chinese shoppers in 2019, a vast majority of them while traveling abroad.

It may take two years for a return to that level, but many retailers are already seeing an uptick. The massive luxury conglomerate LVMH and Hermes International both reported a surge in first-quarter sales thanks to the return of Chinese shoppers. The best-performing group in Europe’s STOXX 600 Index so far this year is consumer products and services, up more than 26%. This is followed by leisure and travel, up 24%; and retail, up 22%.

The best-performing luxury stocks, meanwhile, include Hermes, up 38.6% year-to-date; Moncler, up 35%; and LVMH, up 32%.