(News Bulletin 247) – Official data showed a contraction in manufacturing activity in China for the second month in a row, which is weighing on luxury stocks in Paris.

When China coughs, luxury stocks catch a cold on the stock market. In Paris, LVMH gives up 1.6%, Hermès gives back 2.2% when Kering loses 2.5% around 11:00 am Wednesday morning, the sector being undermined by degraded Chinese indicators.

According to official data, manufacturing activity in the Middle Kingdom once again experienced a bout of weakness in May. For the second month in a row, the PMI manufacturing index stood below the 50 mark which separates contraction and expansion of activity to stand at 48.8 in May against 49.2 the previous month. The PMI index measuring activity in services also fell to 54.5 in May from 56.4 in April.

These figures show that the post-Covid recovery of the world’s second largest economy seems more laborious than expected. Quoted by AFP, economist Zhiwei Zhang, from Pinpoint Asset Management, points out that “domestic demand has weakened recently, partly due to the slowdown in the real estate market and the second wave of Covid. External demand n is also not favourable, as the United States faces the risk of recession”.

And by extension, the CAC 40, heavily weighted in luxury stocks, is showing signs of feverishness, in reaction to these doubts about the recovery of the Chinese economy. The Parisian index yields 0.7% around 11:00 a.m. after having dropped 1.2% from the first exchanges.

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A gloomy atmosphere in Chinese squares

Earlier in the morning, Chinese stock markets closed lower. Shanghai returned 0.6%, while Hong Kong fell 2.5% on Wednesday morning after these disappointing Chinese indicators. Since the beginning of the week, the mood has been gloomy in Chinese markets, investors were already anticipating these signs of weakness in the Chinese economy, while in April, manufacturing activity in China had already declined unexpectedly.

In this context, the Hang Seng China Enterprises Index, the flagship index of the Hong Kong Stock Exchange which lost 1.9% on Wednesday, is now down more than 20% from its peak of January 27 at 7773. .61 points, a threshold from which the market is generally qualified as bearish (or “bear market”).

In addition to these concerns about the country’s economic recovery, a new diplomatic crisis between the United States and China is also rekindling tensions. Beijing recently rejected a US request for a meeting of defense chiefs at an upcoming security forum in Singapore. Quoted by FinancialTimesLouis Tse, managing director of the brokerage firm Wealthy Securities, explains: “It’s the economy, yes, but it’s also more than that”.

It is therefore difficult for investors to be positive on China given these headwinds. “There’s just no positive news and it’s really difficult for investors,” Willer Chen, principal analyst at Forsyth Barr Asia Ltd, told Bloomberg.