Luxury Market Values Continue to Decline Amidst Economic Uncertainty

In China, the ongoing real estate crisis continues to cast a shadow over the country's economy. In August, payment defaults roiled the markets, prompting the Chinese government to intervene for the first time, a move they had previously resisted. Arthur Jurus, Chief Strategist at ODDO BHF Suisse, confirms, "The government stepped in by lowering various benchmark rates to stimulate credit, but this hasn't proven sufficient. The decline persists, confirming stress in the sector and the slowdown of Chinese growth." A deflation scenario, a major concern for all, is taking shape. "At the producer price level, there is a year-on-year decrease of -3.3%, confirming deflation. As for Chinese consumption, it was at -0.3%, briefly rising to +0.1%. This confirms weak Chinese demand, a trend that may continue."

What is the impact on the luxury market? In the premium and high-end segments, the impact is expected to remain limited. In the second quarter of 2023, sales growth for major luxury groups recorded high percentages, averaging +20% in Europe and between 30% and 40% in Asia, thanks to the reopening of the Chinese market. Speaking at the recent Geneva Watch Days in late August, Jean-Christophe Babin, CEO of Bulgari (LVMH), confirmed, "The premium and ultra-luxury segments in the watchmaking (over 30,000 Swiss francs) and jewelry (over 50,000 Swiss francs) sectors are experiencing much higher growth rates compared to the mid-range (between 5,000 and 12,000 Swiss francs). Customers purchasing at these price points are less sensitive to high interest rates and rising energy costs. However, for a significant portion of the population, these factors could have temporary consequences, particularly after the strong post-covid growths. We noticed this during the summer. Regarding the Chinese market, the country has experienced a resurgence in tourism since the beginning of the year, albeit still limited to Singapore, Hong Kong, Macao, and Japan, which is why these countries are showing high sales rates across all price ranges. However, South Korea, where Chinese tourists are not yet allowed to travel in groups, is not yet following suit. A few weeks ago, the government announced a new list of destinations (about forty) where Chinese tourists will be allowed to travel in groups. Unfortunately, Europe is not yet on that list."