SINGAPORE – Luxury-brand companies’ stock prices plunged in July, after their financial results disappointed investors, owing largely to slower sales in emerging markets, especially in China. Meanwhile, news reports indicate that high-end shopping malls in India and China are increasingly empty.
What is going on? Many analysts had expected emerging markets to generate exponential growth over the next decade. But now there is talk of how the global crisis is slowing down these economies and killing off discretionary spending.
But a slowdown in China’s economic growth cannot really be blamed for slower sales of luxury goods or empty malls. The annual growth rate of China’s $7.5 trillion economy decelerated to 7.6% in the second quarter, from 8.1% in January-March – hardly a cause for panic. Moreover, two-thirds of the decline is attributable to slower investment rather than slower consumption. For all of China’s long-term structural problems, it is not exactly slipping into recession.
The real problem is that many analysts had exaggerated the size of the luxury-goods segment in emerging markets. China is by far the largest emerging-market economy, with 1.6 million households that can be called “rich” (defined as having annual disposable income of more than $150,000). But this is still smaller than Japan’s 4.6 million and a fraction of the 19.2 million rich households in the United States. The number of rich households amounts to barely 0.7 million in India and one million in Brazil.