By Frank Holmes
Shanghai, the Chinese commercial hub with 26 million residents, ended its two-month citywide pandemic lockdown last week, a sign that the world’s second largest economy may be ready to return to business-as-usual. A reported 90% of stores and restaurants have resumed operations as of last Wednesday, which I believe is very good news for global luxury sales in particular.
As I’ve pointed out before, the Chinese are big buyers of luxury goods, from high-end jewelry to leather goods to fragrances, and the end of Covid-related lockdowns is expected to bring customers back to in-person shopping experiences. The SSE Composite Index, which tracks Shanghai-listed stocks, lagged year-to-date through May 31, along with the S&P Global Luxury Index. I believe equites could rise sharply from here, supported by stronger sales due to Covid restrictions being lifted.
Partly as a result, the China Manufacturing PMI rose to 49.6 from 47.4 in April. Although this is still under the 50.0 threshold separating factory expansion from contraction, the reading exceeded consensus by 0.6 points. If China’s economy continues to reopen and people return to work, I expect June’s PMI to be above 50.0, which would bode well for economic growth in general.
China Could Be The Biggest Luxury Market Within Three Years
Again, the Chinese love their luxury items. Last year, the country’s luxury market recorded double-digit growth from 2020 levels, putting it on pace to become the world’s number one luxury market by 2025, according to Bain & Co. Luxury’s growth has been closely correlated with the expansion of the middle class as well as China’s transition from a manufacturing-based economy to one that is supported by consumption, similar to the U.S. and other Western, high-income countries.
Granted, this projection was made in December 2021, before the latest Covid lockdowns, but the sharp recovery in May’s PMI reading tells me that the lockdowns may have little economic impact over time.
With so much growth projected in China’s luxury market, now may be the time for investors to consider Chinese equities, luxury stocks or both.
USCOX And USLUX
U.S. Global Investors is pleased to provide investors opportunities in both asset classes.
Our China Region Fund (USCOX) invests in new and existing companies registered and operating in China and the surrounding region, including Taiwan, Korea, Singapore, Indonesia and more. This is one of the fastest growing regions of the world, with a thriving, young workforce whose incomes increasingly can support a consumer-based lifestyle.
Then there’s the Global Luxury Goods Fund (USLUX), which invests in companies around the world that are involved in the design, manufacture and sale of products and services that are not considered to be essential but are highly desired by consumers with middle to high incomes.
Originally published by U.S. Global Investors on June 8, 2022.
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Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
Mutual fund investing involved risk. Principal loss is possible. Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.
Companies in the consumer discretionary sector are subject to risks associated with fluctuations in the performance of domestic and international economies, interest rate changes, increased competition and consumer confidence.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The SSE Composite Index also known as SSE Index is a stock market index of all stocks that are traded at the Shanghai Stock Exchange.
The S&P Global Luxury Index is comprised of 80 of the largest publicly-traded companies engaged in the production or distribution of luxury goods or the provision of luxury services that meet specific investibility requirements.
The Purchasing Managers Index (PMI) is an index summarized and compiled through the results of the monthly survey of enterprises purchasing managers.