The Chinese government’s announcement of a national wealth redistribution plan sparked grave concerns. Fearing a rise in income tax for the wealthiest Chinese, the world’s pre-eminent luxury consumers, investors reacted promptly, causing the luxury sector’s share prices to plummet on the main stock exchanges. In just a few days, valuations for the leading listed groups dropped by nearly 13%, losing tens of billions of euro in market capitalisation.A slump that must however be assessed in the context of high valuation growth in the recent past. As many analysts pointed out, the sector has performed very strongly in recent months, driven by the record quarterly recovery of some groups, whose valuations soared by up to nearly 40% in some cases. Moreover, forecasts remain positive for the end of 2021 and for 2022, thanks in part to the US market’s rebound.

In a report released on Tuesday, Bernstein’s analysts nonetheless underlined how for the luxury industry “the risks are no longer related to the repatriation of Chinese expenditure, but rather to policy changes in China.”They further explained that “Chinese demand for luxury [goods] could crash down hard due to new policies on wealth and taxation, new, nationalistic consumer behaviour, and international trade tensions in which the luxury sector might be caught up, etc.” Bernstein argued that “this scenario seems unlikely at the moment, while companies continue to view China as an opportunity rather than a problem.”However, Beijing’s policy decisions, combined with the current economic slowdown in China and the upsurge in Covid cases in the country could hamper the striking recovery that the luxury industry staged at the beginning of 2021. This is enough to dampen the enthusiasm for a future that remains more uncertain than ever. Especially for those brands that rely most heavily on Asia, including luxury labels and groups like Hermès, Burberry, Richemont, Prada, Kering and LVMH.