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Key takeaways:

  • Lower vaccine efficacy means higher coverage is needed. Yet this is not necessarily a drag on growth for now. Chinese wealth woes may turn out to be ‘middle-class friendly’.
  • The consumers, especially the high-end ones, are not through with their spending. On the contrary, opportunities are opening up here. 

Take the ‘zero-Covid-19’ strategy that was applied in many Asian countries. While this was highly successful last year, the delta variant points to a shift in favour of a pure vaccine-based strategy. But even here, the higher the infection rates, the higher the required vaccination rate. While everyone feels like an expert in the field after 18 months of pandemic spotting, we do not claim to be able to anticipate where dynamics are heading. The only point we would like to make is that we are quite reluctant to downgrade our growth expectations (which is our turf) based on rising uncertainty in the pandemic. First, we have had all this before and so far it has not stopped the economy from staging a massive comeback. And, more importantly, the players in the economy have become more used to dealing with such uncertainties – authorities included. So yes, uncertainty is rising yet again. However, we do not see this as a showstopper for the recovery, which was expected to slowdown anyway after the massive increases of the past months.

Speaking of showstoppers
The announcement of higher taxes for the wealthiest in China created quite some turmoil in financial markets. First, and foremost, in the luxury space of course. We acknowledge that investors may become more sensitive to the news flow out of Beijing when it comes to ‘common prosperity’. Yet the policy shift may be designed to be a lot more ‘middle-class friendly’ than it is hostile to the ultra-wealthy. The Chinese luxury goods market is in the hands of younger consumers (see our number of the week). Thus, in the medium term, the impact of the new policy could even lead to higher consumer spending in the luxury sector.

Conclusion for investors
All the more reason on a global scale to see jitters but not an end to the consumer-led recovery. Investors may want to reconsider some consumer franchises after the heavy profittaking of last week.

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