European luxury-goods stocks tumbled as data show the pro-democracy protests in Hong Kong are taking an increasing toll on the city’s economy, with retail sales crashing by a record amount in August.
As Goldman Sachs details, August retail sales growth (in value terms) was down 23% yoy, the largest decline on record. On a month-over-month basis after seasonal adjustment, the value of retail sales contracted by around 12.5% in August vs -5.2% in July.
Clothing and footwear, department stores and jewellery, watches and clocks retail sales saw material deterioration. Jewellery, watches and clocks retail sales contracted 47.4% in August, vs -24.3% in July. Clothing and footwear retail sales were down 32%yoy, vs -13% yoy in July, and department store sales declined by 29.9% yoy in August, vs -10.4% yoy in August. Supermarkets, food/drinks and fuel retail sales year-over-year growth improved slightly in August vs July.
In volume terms, retail sales growth showed similar patterns. Headline retail sales volume growth was -25.3% year-over-year, the largest decline on record. Jewellery, watches and clocks showed the biggest deceleration to -50.7% yoy in August, vs -26.4% yoy in July.
And this has had a direct impact on Europe's luxury-good makers... broadly.
Swatch falls 2.8% in Zurich, extending YTD losses to 11%, among the biggest losers on Switzerland’s benchmark SMI Index
Shares in Swiss peer Richemont, which owns brands such as Cartier, down 2%.
Moncler eases 1.9% in Milan while Hugo Boss sheds 2.4% in Frankfurt; LVMH (-1.9%), Kering (-2.9%) and Hermes (-2.3%) all down in Paris.
Burberry down 2.5% as of 11:05 a.m. in London trading, among the biggest decliners on the Europe Stoxx 600 Personal & Household Goods Index.
And Prada closed down 2% on the Hong Kong Exchange.
As Bloomberg reports, Co-CEO and designer Miuccia Prada said “Hong Kong is a disaster, like for everybody,” speaking at a runway show in Paris Tuesday.
“You can’t compensate those kind of numbers,” said Lorenzo Bertelli, Prada’s head of marketing and communication.
And judging by last night's escalation, things will not improve anytime soon, and as Goldman concludes, the ongoing street protests since June have continued to affect business and leisure travel and spending (and recently cut our forecast for HK real GDP growth in Q3 to -2% yoy, and our 2019 full year GDP growth forecast is now at -0.6% yoy.)
Additionally, speaking at a conference in Amsterdam this morning, Kyle Bass, the founder of Dallas-based hedge fund Hayman Capital Management, confirms Hong Kong faces a "severe" economic decline, adding that "a significant amount of capital and investment to leave Hong Kong in next 12 to 18 months."
Bass says Hong Kong's economy is being drained of liquidity and predicts that its FX reserves will worsen for September and October, calling Hong Kong's economy a "giant question mark."
And in case you wondered where the capital was flowing...BTC Demand in Hong Kong Reaches Record Highs:
As eToro noted, while it’s hard to identify the source of trading volume, spiking demand for BTC could be a sign that some Hong Kong protesters are seeing bitcoin as a way to opt-out of the local economy that is run by governments and financial institutions