How is China's yuan devaluation impacting Europe's luxury markets? Sara Hemrajani looks at how companies like Swatch and VW are faring, amid expectations of falling Chinese consumer demand.
As the yuan drops for a third day, European investors are bracing for a deeper dent in Chinese spending power, especially on luxury items. Although they've since regained some ground, some of the biggest stock losers this week are German auto giant Volkswagen, which owns Lamborghini, Audi and Bentley. And Swatch, whose brands include Omega and Longines. The luxury sector has already been feeling the strain as China's economy slows and Beijing cracks down on corruption. And that picture isn't likely to improve soon. David Stubbs is from J.P. Morgan Asset Management. SOUNDBITE: David Stubbs, Global Markets Strategist, J.P. Morgan Asset Management, saying (English): "If you look about what's going on with the world economy - the decline in commodity prices for example - those high prices created a lot of very rich people in certain parts of the world that spend a lot of money on luxury goods. I don't think that the next couple of years are going to be as favourable for luxury brands as the previous ones." More than 100 million Chinese travel abroad every year, buying more luxury goods than any other nation. But habits may change with the recent currency moves. SOUNDBITE: David Stubbs, Global Markets Strategist, J.P. Morgan Asset Management, saying (English): "I think the Chinese people are going to be continuing to spend. But in terms of where they do it, potentially staying closer to home geographically and focusing on the weakness in places like Japan and of course Australia as well, which has seen significant currency weakness. It's an awful lot cheaper to buy goods there if you're Chinese than it was just a year or so ago." Analysts say Chinese luxury spending accounts for as much as 45 per cent of the global market, up from effectively zero, a decade ago.