The US trade war poses a threat for China's economy.
The US trade war poses a threat for China's economy.
Image: Getty Images / Ulrich Baumgarten

The trade war between the US and China is a big story, and it’s taking a toll on stock-market sentiment. There are legitimate concerns that China’s economy will be seriously affected as exporters to the US lose sales.

However, it’s important to keep the bigger picture in mind. The overall Chinese economy will probably continue to grow at a rate above 6%, which is still pretty good. The population is still urbanising and the middle classes are expanding. The political actors of the moment, Xi Jinping and Donald Trump, will be gone soon, but the youth of today will keep walking.

Chinese consumers at home and abroad spent 770-billion RMB ($111-billion) on luxury items in 2018. Their outlay is set to almost double by 2025

Consider the Chinese luxury-goods market. According to a recent McKinsey report, Chinese consumers at home and abroad spent 770-billion RMB ($111-billion) on luxury items in 2018. Their outlay is set to almost double by 2025, when 40% of the world’s spending on luxury goods will be conducted by Chinese consumers.

According to McKinsey’s analysis, that growth will be primarily driven by an explosion of upper-middle-class households to 350-million by 2025. China’s affluent class (households earning above $3,900 per month) will almost triple to 65-million people during the same period.

The majority of these people, about 70% in fact, will be doing their luxury spending overseas — a result of an increasing affinity for outbound travel, the price differential resulting from China’s import-tax regime, and brands’ own pricing policies. However, that ratio may shift in favour of domestic spending as a result of moves to cut luxury import taxes.

To invest in these trends, my preferred investments are LVMH, Richemont and Booking.com.

Theron is CEO of asset manager Vestact. 

From the July edition of Wanted 2019.

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