European Luxury Goods & Specialty Retail — China: Recovery Keeps Getting Pushed Out

Ahead of the Q3 reporting season, we summarise our estimates and the key debates around China. With Golden Week likely to be subdued, regulatory pressures persisting and increased competition, we still struggle to identify a clear catalyst for a Chinese recovery. We continue to see downside risk around Chinese luxury spending in the short term. Q3 trends deteriorated versus Q2, early Golden Week spending indicators appear muted and recent policy developments targeting offshore wealth and outbound travel create additional uncertainty for affluent consumers. While the debate remains whether current weakness is cyclical or temporary, we reiterate our view that China is seeing broader structural changes in consumer behaviour. We expect the Chinese cohort to be down by around -7% across our coverage (vs c.+1% growth in Q2). Looking towards Q4, we estimate the Chinese cohort will be down -1%, which represents an improvement vs Q3 as well as on a 2Y stack basis, though there could be downside