Investing.com — China’s latest round of stimulus measures may not be enough to spur a recovery in demand in the country’s key luxury goods market, UBS analysts say.
The Chinese government last week announced a new policy package aimed at supporting China’s struggling economy and struggling housing sector, including lowering interest rates and reducing existing mortgage costs.
The People’s Bank of China also announced a swap program with an initial size of 500 billion yuan, aimed at giving funds, insurance companies and brokers easier access to the funds they need to buy stocks. The People’s Bank of China also announced that it would provide commercial banks with low-cost loans of up to 300 billion yuan to help listed companies finance stock purchases and buybacks.
The announcement sent Chinese stocks to their best weekly performance in nearly 16 years, and the rally continued into Monday.
In Europe, luxury goods giants like LVMH (EPA:); kering (EPA:) and Hermès (EPA:) both saw their shares soar on hopes that stimulus would reinvigorate weak demand in China, a key market for luxury goods sales. The country accounts for about 30% of the sector’s sales, according to UBS.
But analysts argue that China may need to deploy further measures to sustainably support its economy. Data on Monday showed that Chinese factory and consumer activity remained weak in September.
UBS analysts specifically focused on the relationship between real estate prices and demand for luxury goods, which is one of the focal points of China’s economic woes, adding that about 40% of China’s wealth is in real estate. For comparison, in the US this number is about 30%.
“Given that China’s wealth is concentrated in real estate, it appears that this part of the market may be key to the ‘feel good’ factor for luxury consumers,” UBS analysts wrote. he wrote in a note to customers Monday.
Furthermore, although the details of further support measures by the Chinese government have not yet been revealed, stabilization of the real estate market is expected to take a longer time due to reasons such as an oversupply of housing and a “significant increase in the household debt ratio.” , it would cost more, he added.
As a result, he argued that further stimulus alone “may be enough to spur a recovery in China’s luxury goods demand.”
