Luxury stocks, including Burberry Group PLC (LSE:BRBY), Watches of Switzerland Group PLC (LSE:WOSG) and Louis Vuitton Moet Hennessy (EPA:MC) sashayed higher on Thursday on investor excitement about China potentially unleashing further economic support meaures.
Kering, the owner of Gucci, Saint Laurent, Balenciaga and Alexander McQueen, saw its shares leap over 10% in afternoon trading, with LVMH, Hermes International and Eastee Lauder both jumping over 9% in Paris.
In London, Burberry and WoS both rose over 8%. In New York, US fashion groups like Coach owner Tapestry Inc (NYSE:TPR) were up only 1.3%
It followed China’s politburo pledging to increase fiscal support for the domestic economy, just days after the country's central bank unveiled a swathe of new stimulus measures, including rate cuts.
“Fresh from big stimulus measures earlier in the week, all eyes remained focused on China amid talk that Beijing might inject up to 1 trillion yuan of capital into its top banks and to support the economy through interest rate cuts," said analysts at AJ Bell.
China's SSE Composite index has risen over 9% since the start of the week, while European luxury fashion groups were up over 10%, 11% and 12% over the week as the Chinese middle classes are significant source of demand.
This politburo meeting's devotion to the economy indicates top policymakers "finally realise the urgency of shifting policy course", said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
It confirms China is placing a higher priority on achieving the “about 5%” growth target, he said, in response to signs of weakening growth over the last couple of months, despite the modest easing moves announced in July after the last politburo meeting focused on the economy.
He noted that Beijing also used similar language in July, hoping to push forward reform and supporting growth, but that approach proved ineffective in boosting short-term domestic demand.
"Now policymakers apparently realise the need for a greater focus on short-term growth, with the use of traditional stimulus tools," said Wrigly, with the monetary policy support announced this week larger than July and "communicated in a ’shock and awe' fashion presumably intended to juice up market and private sector sentiment".
While China is reportedly set to give cash handouts, Wrigley said these will "probably a tiny amount, totalling perhaps RMB5B, to the fewer than 5M people in extreme poverty and orphans".
"Radical policy ideas to soak up inventories don’t seem to be on the table for now, and so a prolonged, grinding recovery is in prospect," he said, with the prime beneficiary so far of this easing round being the stockmarket.
The politburo meeting called for efforts to boost the capital market, M&A of listing companies, reforming public funds and measures to protect smaller investors.
But he said the stock market surge is "likely to get ahead of the sluggish real economy this time, in some ways similar to 2015", with share ownership concentrated to around 200 million retail stockmarket accounts, "limiting the wealth effect on consumption activity".