China's luxury buyers pull back as economy slows

Thu Jul 12, 2012 2:48am EDT
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By Donny Kwok

HONG KONG (Reuters) - Shares of the world's largest jewelry retailer, Chow Tai Fook, tumbled nearly 8 percent to a two-week low on Thursday on weaker-than-expected sales, deepening a sector-wide stock slump as China's slowing economy saps luxury demand.

A host of Chinese companies, ranging from a steel maker to a major airline, have warned of disappointing results over the past week as the world's second biggest economy slows to its weakest growth pace in three years.

Evidence that the slowdown was spreading to China's luxury sector, which is a vital source of growth for companies worldwide, spooked investors. Britain's Burberry said on Wednesday its sales had been hit by a slowdown in China.

Shares of Italian fashion house Prada and high-end men's fashion retailer Trinity were both down nearly 4 percent in midday trading.

"An economic slowdown defers consumer spending, in particular the need for luxury items," said Linus Yip, chief strategist in First Shanghai Securities.

"Investors may reduce their exposure to the luxury segment until they see signs of a pick-up."

Chow Tai Fook said late on Wednesday that its revenue grew just 16 percent for the three months ended in June, well below the 61 percent rise it reported for the fiscal year that ended in March.

Its overall same-store sales growth was 4 percent, but Hong Kong and Macau turned in a surprisingly weak 1 percent decline because of lower sales of expensive gem sets. Same-store sales in mainland China were up 10 percent.   Continued...