European luxury businesses set for boost from China’s Golden Week

European consumer stocks may continue to benefit from China’s policy support, which has bolstered consumer spending during the country’s National Day Golden Week holiday.

European luxury brands such as LVMH, Hermès, Kering, and Richemont have all risen by more than 10% over the past two weeks, following the People’s Bank of China’s (PBOC) announcement of several stimulus measures.

The Golden Week shopping spree is expected to further boost sales for these popular brands among Chinese consumers.

On Monday, the Stoxx Europe Luxury 10 Index climbed 1.76%, outperforming broader markets.

Kering, among the hardest hit by sluggish Chinese demand, surged over 4%, most likely to have been driven by optimism surrounding China’s holiday spending surge.

Chinese stock markets reopened on Tuesday following the week-long holiday, with major indices, including the Shanghai Composite and the CSI 300, jumping 8% and 11%, respectively, at the market open before paring gains.

This optimism may spill over into European consumer stocks, particularly in luxury brand-heavy French markets, as the CAC 40 opened higher.

However, other European indices, such as the DAX and Euro Stoxx 50, have been trading lower due to risk-off sentiment amid the ongoing conflicts in the Middle East.

China’s holiday spending surge

According to Alipay, China’s largest payment platform, overseas transactions by Chinese users increased by over 60% during the first four days of the holiday compared with the same period last year, while spending by international travellers surged 120% year-on-year.

The week-long holiday, which runs from 1 to 7 October, significantly impacts China’s economy and overseas markets, with a substantial rise in holiday consumption.

Following trillions of yuan in easing measures, this year’s Golden Week could mark a turning point in Chinese consumer spending, following subdued activity over the past two years due to Covid restrictions and housing market challenges.

Additionally, Trip.com reported that long-haul flights exceeded pre-pandemic levels seen in 2019 on the first day of the holiday period.

The top outbound destinations were Asian countries such as Malaysia, Vietnam, South Korea, Thailand, and Singapore, where Chinese travellers frequently shop for European luxury items like handbags, clothing, and accessories.

The travel website also highlighted that the most popular European destinations were the United Kingdom, Spain, Germany, and Italy, with multi-destination itineraries making up 30% of Chinese travellers’ plans, with stays lasting between 10 and 14 days.

European cities such as Granada and Seville saw bookings surge by 260% and 144%, respectively.

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China Central Television also reported a 50% increase in homebuyer visits during the holiday, indicating that China’s easing policies are having an immediate effect on consumer confidence.

European luxury sector as safe haven amid geopolitical tensions

Amid escalating conflicts in the Middle East, the European luxury sector could serve as a safe haven for investors due to its significant exposure to China.

Chinese stock markets have outperformed global markets in the past two weeks, as the Chinese government introduced policies such as cutting key lending rates and injecting cash into stock markets to boost consumer spending and the property sector.

Major Chinese indices, including the China A50 and the Hang Seng Index, have soared by more than 30% month-on-month.

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This rally contrasts with the geopolitical tension-led market retreats in the US and Europe, which has provided additional bullish momentum for European consumer stocks.