Burberry Shares Drop 18% and the Chinese Stock Market Continues to Suffer

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Burberry Shares Drop 18% and the Chinese Stock Market Continues to Suffer

Burberry Shares Drop 18% and the Chinese Stock Market Continues to Suffer



We have seen some worrying corporate news this morning, as Burberry issues a profit warning that has seen Burberry shares tumble 17% on the open.

The main concern is that the retailer has enjoyed a few boom years as a result of the ever growing Asian middle class, particularly in China.

Burberry has a large exposure to the country so, given these results, does this suggest a flagging of the Chinese consumer? If it does, the global ramifications could be greater than many have considered.

Over the last couple of years, China has been hoping that its growth spurt would be sustained by a shift from exports to domestic demand.

Of course, exporters in both Europe and the US are now heavily reliant on the new found wealth of the Chinese.

The great debate about whether their economy will see a hard or soft landing rumbles on, with neither side being able to claim outright victory.

Nevertheless, even in a hard landing scenario, the numbers still suggest that Chinese consumption will grow by trillions of dollars over the next decade. This will ultimately make it the largest economy in the world, possibly by as soon as 2020.

Chinese indices have been really suffering and, even if the most ardent economic bulls are proved right, investors simply do not believe that such strength in the economy will translate into corporate profits.

Burberry's results have highlighted this, as Chinese consumers are still buying kit like it's going out of fashion, but maybe not so much of the expensive foreign merchandise.

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By Simon Denham, 11 September 2012


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