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Are China’s austerity measures starting to bite?

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Are China’s austerity measures starting to bite?

Europe and the Asia-Pacific regions account for the majority of Prada’s revenue, so it was no great surprise when Prada’s same store sales for the July 2014 half-year actually declined by 3 per cent on the previous year.

It is important to note that Chinese consumption accounts for nearly 30 per cent of global luxury goods, and around one-quarter of those purchases are made domestically and three-quarters are made when wealthy Chinese are abroad. The Chinese government’s anti-corruption and austerity measures will see pressure on the luxury goods market for the foreseeable future.

There will likely be a drag on Prada’s earnings from the planned store expansion (around 10 per cent or 60 stores) in the current financial year (to January 2015), the declining store productivity as well as the inventory build.

Another sector vulnerable to the aforementioned Chinese anti-corruption and austerity measures is gaming in Macau, and the October 2014 decline of 23 percent was the biggest year-on-year drop since the Macau government started issuing gaming revenue data in its current form in 2005.

 

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Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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