Luxury & Fashion Structural catalysts stronger than Covid-19 and geopolitical tensions

Are renewed lockdowns in China a major threat to prospects for the luxury sector in 2022? This week, China has witnessed the highest number of Covid-19 cases since Wuhan in 2020, with daily cases nearing peak levels. Despite a more adverse macro environment, we expect further double-digit growth in China at 13%, again driven by the powerful trend of repatriation of purchases as we do not expect Covid-19 related travel restrictions to be lifted anytime soon. On that note, persisting restrictions on international travel are boosting duty-free sales on Hainan Island, with sales that almost doubled in 2021 and already accounting for 13% of China’s luxury goods market. Furthermore, LT catalysts, i.e. rising middle-class, increasing weight of the younger generations, etc., are still valid in our view. On average, Mainland China accounts for 23% of our luxury groups sample, even account for 25% of sales at the two Swiss watchmakers Richemont and Swatch Group.