This Thursday, luxury stocks are down sharply following the announcement of a wealth redistribution plan and a possible increase in wealth tax mentioned by the Chinese leader Xi Jinping.
Throughout Europe, luxury goods stocks are falling on the stock market due to fears provoked by the announcement of a new wealth redistribution plan by the Chinese Communist Party, supported by its current leader Xi Jinping.
In the interest of social equity, the wealth redistribution plan, entitled “common prosperity plan“, targets the country’s wealthy populations, and threatens the majority of the luxury goods industry’s clientele in its leading global market.
While the luxury giants yesterday concluded their worst session of 2021 (with respectively -5.2% for LVMH, -3.8% for Hermès and -3.6% for Kering), this announcement further darkens the horizon for French luxury.
Thus, the world’s number one luxury goods company LVMH fell by 6.02% at 9:30 am and dropped to its lowest level in three months. The French group Kering, a competitor of LVMH which owns among others the brands Gucci, Saint Laurent or Balenciaga, also suffered heavy losses and tumbled by 7.94%, taking the largest drop in the CAC 40 and its worst session since March 12, 2020.
Hermès, meanwhile, was down 3.5%. Thus, these three big names in luxury have recorded a new session in the red, with losses for the week amounting to 16% for Kering, 12.7% for LVMH and 8% for Hermès. Luxury goods, the engine of the French economy, is dragging the CAC 40 down and the Paris Stock Exchange‘s flagship index is losing 2.87%.
With the prospect of a tax on the highest incomes in the Middle Kingdom, a panic invaded the luxury market. With this plan, President Xi Jinping wants to limit “unreasonable income” in order to increase wages.
According to the minutes of the Central Committee of Financial and Economic Affairs of the Chinese Communist Party, this plan will reduce existing inequalities and raise the middle class and the country’s poorest households.
The plan will aim to “strengthen the regulation and adjustment of high incomes, protect legal incomes, reasonably adjust excessive incomes and encourage high-income groups and companies to give more back to society,” as Bloomberg reports, paraphrasing the China News Agency.
Investment bank J.P. Morgan weighed in on the matter, recalling that for European luxury stocks, “the Chinese consumer is key, with one-third of the sector’s global sales,” and that “European luxury stocks were already struggling on Wednesday due to reports of the possible implementation of property and inheritance taxes in China“.
“We recognize that this represents an additional risk to the strong recovery seen in the sector so far and we will be watching … for increased consumer awareness of wealth demonstration,” J.P. Morgan added.
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