China takes aim at West's bling weapon

Key Markets report for Tuesday, 6 May 2025

One of the most curious developments over the past few weeks has been a deluge of social media posts about the “Made in China” European luxury goods. As far as I could tell, the Champagnes may still be made in France, but much of everything else, it seems, has been outsourced to Chinese manufacturers. Among the most spectacular reports was the detailed account of the way a Hermes handbag, which retails at $38,000 in high-street shops, is manufactured in China at a cost that’s closer to $1,000, revealing just how much the customers are paying for the label alone. Besides Hermes, Louis Vuitton brand was the focus of the most viral posts.

This all caused a huge commotion in the markets - so much so that France’s LVMH stock dropped by over 25% in the last few weeks (from $151 in February to $110.75 at yesterday’s market close). LVMH is the world’s largest luxury group owning 75 top brands like Louis Vuitton, Christian Dior and Dom Perignon, offered at more than 6,300 stores around the world. The group generated around $96 billion in revenues in FY 2024 and over $22 billion in EBIT. Some of LVMH’s brands’ origins stretch back to the 18th century, but the heirs of those brands’ founders have all been bought out over time and all the bling has been consolidated under one group. Today it is 49% owned by the family of Bernard Arnault, making him the richest man in Europe.

One of his company’s highest margin brands is exactly Louis Vuitton, which is why the recent China revelations packed such a devastating blow to the group. The question that’s still unanswered is, why did all this happen, and why now? The sudden flood of Chinese posts on TikTok, YouTube and other social media platforms seem to have come out of nowhere, all of a sudden and all at once. Many of the videos suggest that they weren’t produced on random impulse; some thought was put into producing them, implying that the reputational damage inflicted on European luxury brands was deliberate. If so, why was this done?

The rules-based order’s aspirational compass

Europe (France, Italy, Switzerland and the UK) have a near-monopoly on luxury markets in the world, but France could well be the world leader in the industry. But the importance of luxury goods goes beyond mere indulgence for the top 1% of global consumers. Luxury brands confer status and orient the aspirational compass of the good and the great across the world toward the west.

Over the years I’ve come across many reports of Western officials bribing local politicians, judges, journalists or military officers with monetary rewards in order to carry water for Western financial and corporate interests. American economist Paul Craig Roberts, who used to work in Ronald Reagan’s administration (he’s considered to be the father of Reaganomics), openly stated that the US Government exerts influence in foreign nations by bribing their officials.

Most recently one of Captain Ibrahim Traore’s security officers testified that he was offered a $5 million bribe to kill Traore. He declined, but we can see how that $5 million could be a good investment for certain interests. Across the world many people - probably most - accept such bribes. Now, when an individual who lived as an ordinary person all their lives suddenly has $5 million in a UK or Swiss bank account, they’ll probably spend a good chunk of that money on luxury goods.

Anything your Mrs’s heart desires

In a testimonial I encountered some time ago, an African government official being offered a bribe was told something to the effect that if he did as asked of him, he would be able to buy for his Mrs. anything her heart desired. Although I couldn’t trace the article where I read this, I thought it was an interesting way to appeal to one’s sense of patriotism.

It is certainly effective and the influence it buys is very real. Back in 2022 we saw reports about how Ukraine’s Ms. Olga Zelenskaya travelled to Paris on a private jet and spent €40.000 in a single hour at a luxury store on Paris' Avenue Montaigne. The purpose of her visit to France was to plead for more financial aid for Ukraine. The following year she flew to New York where she spent over $1 million at a Cartier jewellery store in the city.

Mr. and Mrs. Zelensky are certainly not exceptions in this sense and there are probably tens of thousands of government officials around the world who do the same: get kickbacks and indulge their status-seeking impulse by buying goods that are out of reach of the vast majority of their compatriots. For the rules-based global order, the influence these arrangements buy is disproportionately valuable, which would make assets like LVMH strategically important. Well, there’s some evidence for this in the way Mr. Bernard Arnault is coddled by Europe’s ruling establishment.

Bernard Arnault is better than you

For example, in February of 2020, LVMH purchased the jewelry company Tiffany for $16 billion. Mr. Arnault needed to raise $10 billion in bonds. As Reuters reported at the time, the deal was being discussed at €6 billion but was then inflated by 60% and concluded, on the very same day, at €9.6 billion. The sale of bonds was facilitated by none other than the European Central Bank which provided two of the five euro tranches at negative interest rates, thanks to its Corporate Sector Purchasing Program (CSPP). In other words, LVMH’s bond buyers (including the ECB) paid Mr. Arnault for the privilege of lending him the money with which to buy Tiffany. Even the longest maturity, 11-year euro tranche issued by LVMH had a yield of only 0.43%!

Even in February 2020, 99.99% of us couldn’t dream of raising funds at terms nearly as favorable as those offered to Mr. Arnault, suggesting that somehow he is more equal than we are, suggesting further that his business is for some reason particularly important to those forces of liberal democracy who occupy the highest echelons of power and run institutions like the European Central Bank. In this sense, if China suddenly dropped a social media Oreshnik missile at the heart of this enterprise, the move was probably not random but strategic, aimed at dissolving the glue that holds so many of the world’s “patriotic” leaders like Volodymyr Zelensky tethered to Western centers of power.

Former colonial powers of Europe have the global monopoly on weaponized bling, which could be a far more powerful policy weapon than is commonly appreciated and China may have just resolved to destroy it; 99.99% of us will probably regard these developments with a sense of schadenfreude and quietly cheer for China on this particular battlefront.

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Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio: