Shares in Burberry fall as Chinese appetite for luxury goods slows
Shares in Burberry dropped over eight per cent Wednesday after Morgan Stanley downgraded the luxury goods sector over worries of a slowdown in the Chinese market.
Chinese consumer confidence has peaked, the bank said, and consumption trends will likely slow further in the second half of the year before a slight upswing in 2019.
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Tighter consumer credit and lower housing subsidies will weigh on the sector, Morgan Stanley’s China economist, Robin Xing, said.
As a result, the bank downgraded its outlook for luxury goods from neutral to underweight.
European luxury companies are more exposed to changes in the Chinese market than any other sector as around 18 per cent of their revenues come from China Morgan Stanley said.
Including Chinese buyers travelling abroad this rises to around a third, it added.
Burberry, which sells 40 per cent of its products to Chinese nationals, is trading at over 23 times its price over earnings against a ten year average of 18 times, the bank said.
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This puts it in line with other luxury brands like Hermes and LVMH, the group behind Louis Vuitton.
On the back of the report Hermes dropped 5.7 per cent, LVMH 7.4 per cent, and Burberry lost 8.2 per cent of its share value.