Feature: China reopening beneficiaries

above the group average selling price and therefore accretive to margin.’ the £813 million delivered in the Europe, Middle East, India and Africa (EMEIA) region.

And don’t forget other beneficiaries such as highend spirits giants Diageo (DGE) and Pernod Ricard (RI:EPA) and global cosmetics leaders L’Oreal (OR:EPA) and Estee Lauder (EL:NYSE).

As Swetha Ramachandran, investment director, GAM Luxury Equities, argues, the near-term impact of the recovery of the Chinese consumer is underappreciated. ‘In 2019, the Chinese consumer drove a third of the (luxury) sector’s demand and 90% of its growth,’ notes Ramachandran.

‘The Chinese traveller has been virtually absent from the world stage for the last three years due to the Covid-19 pandemic. The decreased contribution of the Chinese consumer amounts to approximately €33 billion in absolute terms, thereby creating huge scope for catch up.’

Ramachandran adds: ‘This is not a catch up which we think will take a long time. Rather, it is happening already, with queues forming at stores domestically and consumers beginning to spend their substantial accumulated excess savings. This is set to receive a further boost with the eventual resumption of outbound Chinese tourism.’

FUND MANAGERS’ FAVOURITES

Zehrid Osmani, manager of Martin Currie Global Portfolio Trust (MNP), points out that China accounts for around 50% of global luxury consumption. Yet despite zero-Covid limiting spending, the sector has remained resilient and top 10 holding Ferrari (RACE:NYSE) is ‘positioned to benefit from pent-up demand as it reopens’.

Osmani notes Q4 2022 results from the iconic sports car maker ‘exceeded expectations, with orders at an all-time high and revenue and EBITDA growth of 12% and 8% respectively. This was the first quarter featuring meaningful contributions from deliveries of the Purosangue SUV and the SP3 Daytona (Icona model). Both models are priced

He adds: ‘This ability to sell at high margins, even by luxury standards, sets Ferrari apart, as it prices its products at a 25% to 75% premium to its nearest competitors. Its focus on ultra-premium limited releases, investment in electric vehicles, and its first SUV in the Purosangue represents encouragement for growth in China, which already accounts for 9% of revenue.’

Also weighing in is Nicholas Price, manager of Fidelity Japan Trust (FJV), who says ‘Japanese retailers and consumer product companies that have a high earnings contribution from China stand to benefit’ from the reopening and ‘an accompanying recovery in consumption’.

Price sees ‘significant growth potential’ for a range of portfolio holdings ‘that can capitalise on their competitive strengths and product appeal. Fast Retailing (9983:TYO) and Ryohin Keikaku (7453:TYO), operators of the UNIQLO and MUJI brands respectively, and sportswear company Descente (8114:TYO) are key examples,’ he enthuses.

In the manufacturing sector, he sees economic recovery in China and an ‘attendant pickup in capacity utilisation’ as positive for companies such as Harmonic Drive Systems (6324:TYO) and MISUMI Group (9962:TYO). Finally, Price flags the prospect of ‘a recovery in inbound demand with the eventual return of Chinese tourists to Japan, which would benefit urban retailers and various hospitality industries.’

Fidelity colleague Marcel Stotzel, manager of the Fidelity European Trust (FEV) and the Fidelity Ferrari shipments by region

in FY 2022

Ferrari shipments by region in FY 2022

Table: Shares magazine • Source: Ferrari 2022 results presentation. EMEIA = Europe, Middle East, India, Africa. APAC = Asia Pacific

Table: Shares magazine • Source: Ferrari 2022 results presentation. EMEIA = Europe, Middle East, India, Africa. APAC = Asia Pacific