China Consumption – Early Signs of Recovery?
It is some five years since the Chinese residential property market rolled over. China Vanke, a favourite for foreign investors back in the day, has lost over 85% of its market value. Many others went bankrupt. More recently, the residential property market appears to be bottoming - Tier 1 and Tier 2 cities have seen prices stabilise and even edge higher.
Steady or rising residential property prices had been perceived, rightly or wrongly, as the most likely trigger for a recovery in domestic consumption.
An interesting report by McKinsey has calculated that, in large part due to the property collapse, the share of Chinese household savings allocated to property has declined from 90% in 2016 to approximately one third today. Savings have been shifting to the stock market, gold, and numerous other financial assets at a very rapid pace.
This massive asset allocation shift, coupled with the strong upward move in equities of late, suggests better times for consumption trends. This appears to be particularly true for luxury goods where recent results from companies including L’Oréal, LVMH and Ralph Lauren suggest affluent consumers are starting to spend again.
Will this trend broaden out to the wider consumer market? That is the big hope.
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