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Latest China corruption twist not reflected in stocks

Chinese Premier Wen Jiabao adjusts his earphone upon arriving for the opening of the World Economic Forum's 'Annual Meeting of the New Champions' in Tianjin, China, Tuesday, Sept. 11, 2012.

Andy Wong/Associated Press

The New York Times' article detailing the extraordinary wealth accumulated by the family of China's prime minister, Wen Jiabao, is causing big waves internationally – but you wouldn't know it from the stock market.

The Times said that Mr. Wen's relatives have controlled assets worth at least $2.7-billion (U.S.), and have gone through some effort to keep the public from knowing about their wealth. China has responded to the article by blocking access to the online New York Times within the country.

Whether or not the blocking efforts work, the article exposes a big problem in China: Perceived corruption among officials. And that plays into the market for luxury items – which has been a huge source of growth for international makers of luxury items.

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If wealthy Chinese consumers start to equate luxury items with corruption, the market for high-end handbags and watches could dry up.

The strange thing is that luxury stocks were up on Friday morning, suggesting that investors don't see this latest twist in Chinese corruption as a threat to growth. LVMH rose 1.6 per cent, while Financiere Richemont SA and Burberry Group PLC rose 1.7 per cent each.

In New York, Coach Inc. rose in early trading but declined as the broader market turned south in mid-morning trading. It was last spotted down 0.5 per cent. Tiffany & Co. also rose initially but was down 0.8 per cent in mid-morning trading.

Some of these luxury names have been struggling recently, with reports that Chinese sales are stumbling. But the Times' article takes corruption allegations to a whole new level, and you have to wonder when – and how badly – luxury stocks will react.

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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