The long-awaited China reopening has already sparked a rebound in the country’s equities and may have helped broader markets as investors consider the opportunity from increased mobility and spending. Europe is one of China’s largest trading partners, so could the relaxation of restrictions in the region be disproportionately beneficial for European companies?


Despite rising Covid rates in December, China has continued a rapid course of relaxation of travel restrictions. The country’s heightened controls and zero-Covid policy had supressed mobility and travel, creating a huge amount of potential pent-up demand. Indeed, the Chinese Ministry of Transport said that it expects more than 2 billion passengers to take trips over the 40-day period of the Lunar New Year, an increase of almost 100% year-on-year, reaching 70% of trip numbers in pre-Covid 2019.


The Lunar New Year is also an important time for gift giving. Greater mobility is therefore expected to spark a change in consumption. Chinese household savings increased significantly during the lockdowns in 2022, with estimates that one third of household income was saved over the course of the year. This increased savings rate, alongside a reduction in household new loans, helps build a picture of significant pent-up demand and available money. 

China households savings grew most last year
(China annual rise in deposits, Rmb trillions)

*Source: FT, PBOC. (Other includes fiscal savings, financial institution deposits and government savings)

Why China is important for European companies

In 2021, China was the third largest partner for EU exports of goods (10%) and the largest partner for EU imports of goods (22%). While we would caution that higher Covid rates could in the short term continue to hinder supply chains, a reduction in restrictions should help to reduce medium-term disruption in production and distribution of goods.


A particular area of interest for European companies is luxury goods. Chinese consumers made a third of all global personal luxury good sales in pre-Covid 2019, falling to around 18% in 2022, according to Bain and Company research1. Europe has by far the highest proportion of the largest luxury goods brands and companies. French-listed LVMH, which is a diversified luxury goods group, is the largest with EU64bln of sales worldwide in 2021.


Whilst China lost market share in luxury goods spending in 2022, it is expected that greater mobility and higher savings rates for Chinese consumers should be a tailwind for luxury names. Bain forecasts that demand will begin to recover this year, and by 2030 Chinese consumers will make 38%-40% of all luxury sales, the most of any nationality.


Premium spirits brands could also benefit from the increased capacity for spending and gift giving. Whilst domestic spirits such as Baijiu retain a large market share of alcohol sales in China, a growing high-income population has also fuelled an increase in sales of imported spirits over recent years, particularly brandy, whiskey and more recently vodka. As seen in the chart below, European companies also dominate the export market to China in this segment. For Cognac in particular, Pernod Ricard, LVMH and Remy Cointreau own three of the largest brands which have seen growing sales in the region.  

Top 10 Alcohol Beverage Exporters to China by Value (2022 H1)  

Source: Daxue Consulting/ China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce and Animal Byproducts 

Travel-focused companies, such as Spanish travel software company, Amadeus, may also stand to benefit from an increase in travel in Asia. Whilst airline traffic in the US rebounded to 2019 levels in 2022, Chinese domestic airline traffic has lagged at less than 30%.  

Domestic airline traffic (RPK) by region vs 2019  

Source: Redburn, IATA  

The significance for global travel companies is substantial if we consider that Asia Pacific represented about 35% of global capacity in 2019, with China alone representing 14.5% of global seats flown, the reopening of China should result in an acceleration in global travel volumes similar to that when the US and EU markets began to re-open last year.   

Top 10 Luxury Brands in the World 2022  

Source: Top 10 Luxury Brands in the World – All Top Everything  

The value of active minds: independent thinking


A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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