Reuters/Hong Kong
Shares of the world’s largest jewellery retailer, Chow Tai Fook, tumbled nearly 8% to a two-week low yesterday on weaker-than-expected sales, deepening a sector-wide stock slump as China’s slowing economy saps luxury demand. A host of Chinese companies, ranging from a steel maker to a major airline, have warned of disappointing results over the past week as the world’s second biggest economy slows to its weakest growth pace in three years. Evidence that the slowdown was spreading to China’s luxury sector, which is a vital source of growth for companies worldwide, spooked investors. Britain’s Burberry said on Wednesday its sales had been hit by a slowdown in China. Shares of Italian fashion house Prada and high-end men’s fashion retailer Trinity were both down nearly 4% in midday trading. “An economic slowdown defers consumer spending, in particular the need for luxury items,” said Linus Yip, chief strategist in First Shanghai Securities. “Investors may reduce their exposure to the luxury segment until they see signs of a pick-up.” Chow Tai Fook said late on Wednesday that its revenue grew just 16% for the three months ended in June, well below the 61% rise it reported for the fiscal year that ended in March. Its overall same-store sales growth was 4%, but Hong Kong and Macau turned in a surprisingly weak 1% decline because of lower sales of expensive gem sets. Same-store sales in mainland China were up 10%. “We had forecast growth of 5%-6% but not negative growth of 1%,” said Patrick Yiu, a director CASH Asset Management. “We cannot confirm if there can be recovery for the remainder of the year. Even if there is a recovery trend, the growth will be mild.” Hong Kong and Macau accounted for about 43% of Chow Tai Fook’s revenues, with the remainder coming from China. Shares of Chow Tai Fook touched HK$9.55, their lowest since June 28, lagging a 1.6% drop in the benchmark Hang Seng Index. Analysts said a drop in mainland tourists visiting Hong Kong hurt the retail market, a popular destination for Chinese shoppers looking for high quality luxury fashion and jewellery, as well as basic necessities such as infant baby formula. The number of mainland tourist arriving in Hong Kong was down 4.8% month-over-month in May at 2.53mn. Hong Kong retail sales rose 8.8% year-on-year in May, the slowest growth since February 2011.
‘Home prices to rebound in H2 on policy easing, panic buying’Beijing’s efforts to support its faltering economy, coupled with local governments loosening their grip on housing curbs, will likely help home prices recoup first-half losses later this year, a Reuters poll found yesterday. The latest survey of 15 economists and property market analysts, conducted between July 9-11, predicts a 1.4% drop in house prices in the first six months of this year and then a rise of 2.5% in the second half. While a number of Chinese leaders have recently said home prices remain too high, a modest rise in coming months is probably well within policymakers’ comfort levels as long as there is no repeat of the sharp, swift gains seen after the 2008/09 global financial crisis. Indeed, signs of stability in the key sector are likely to be welcomed as the rest of the economy slows due to a combination of cooling demand at home and abroad. A stronger property market may even help Beijing stave off fears that it may be facing a hard economic landing.