Gold Horses Boost Chinese Jewelers as Bullion Slumps


gsr-652496At a shopping mall in western Beijing, Jiang Xue points to a rectangular gold pendant inscribed with a galloping horse and hands half her monthly salary to Chow Tai Fook Jewellery Group Ltd.

The 42-year-old accountant is one of millions of consumers in the world’s most-populous nation purchasing gifts this week for holidays starting tomorrow that mark a change in the Chinese zodiac calendar from the snake to the year of the horse.

Jiang’s $690 present for her mother is helping to fuel sales at Hong Kong-basedChow Tai Fook that surged 26 percent in the three months through December, while the biggest annual gold-price drop since 1981 reduced the cost of making jewelry, coins and bars. The retailer’s shares advanced 54 percent from a record low in June, outperforming benchmark Chinese equity indexes, and 21 of 29 analysts rate the company a buy.

“Older people believe gold brings good fortune and keeps its value,” said Jiang, who left in search of another store because the small horse charms she wanted for her nieces and nephews were sold out. “Gold gifts for children teach them about investment from a young age.”

While last year’s price rout helped erase $73.4 billion globally from the value of exchange-traded funds backed by gold, demand is rising in China. The metal is a traditional store of wealth in the world’s second-largest economy, and after prices fell, those with few investment alternatives took it as an opportunity to snatch up bars, coins and jewelry.

The Shanghai Stock Exchange Composite Index slumped 67 percent from its 2007 high and the government seeks to curb excessive gains in property prices to avert real estate bubbles. The country’s stocks may trail global peers for a fifth year in 2014, according to Bank Julius Baer & Co.

Bars and Coins

Demand in China for jewelry, bars and coins rose 30 percent to 996.3 tons in the 12 months to Sept. 30, the highest of any nation, World Gold Council data show. Net imports of bullion from Hong Kong more than doubled in 2013 to 1,108.8 metric tons.

An index of the share prices of Chow Tai Fook and four competitors from Hong Kong and the mainland — Chow Sang Sang Holdings International Ltd., Luk Fook Holdings International Ltd., Lao Feng Xiang Co. and Zhejiang Ming Jewelry Co. — climbed 5.9 percent in the three months through December as gold dropped 9.3 percent. It fell 1.7 percent this month while bullion advanced 4.8 percent.

“Lower gold prices give an extra boost to demand,” said Yang Chunyan, an analyst at Orient Securities Co. in Shanghai. “Sales of gold gifts typically accelerate in the two weeks leading up to the lunar new year and have really taken off.”

Demand Risk

The magnitude of the gains in sales and share prices last year may temper returns in 2014. Chow Tai Fook, the world’s biggest jewelry chain by market value, trades at 16 times estimated earnings, compared with 9.7 times for Hong Kong’s Hang Seng Index. The multiple for Shanghai-based Lao Feng Xiang is 18 times, versus 7.9 times for the local gauge.

Demand growth for gold is poised to slow after the week-long holidays, Barclays Plc analysts led by Suki Copper and Christopher Louney said in a report Jan. 27. Share prices may remain near current levels, according to Tanuj Shori at Nomura Holdings Inc. in Hong Kong.

The MSCI All-Country World index of equities gained 2.5 percent since the start of October while the MSCIEmerging Markets Index slid 5.4 percent. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, rose 1.6 percent and the Bloomberg Treasury Bond Index climbed 0.6 percent.

Rising incomes and a low penetration rate for gold jewelry and luxury consumer goods points to further expansion in the medium term, said Aaron Fischer, the head of consumer and gaming research at CLSA Ltd.

Asian Appetite

Demand for gold jewelry and bars in India, Indonesia, Vietnam and Greater China, including Hong Kong and Taiwan, increased to about 60 percent of the global total in 2013 from 35 percent in 2004, HSBC Holdings Plc said in an Oct. 18 report.

Shares of Chow Tai Fook, whose gold products accounted for 57 percent of sales in the last quarter, was unchanged at HK$11.48 today. Lao Feng Xiang, which makes three-quarters of revenue from jewelry, was little changed at 25.20 yuan.

Spokesmen for Chow Tai Fook and Lao Feng Xiang declined to comment on the share prices, while the Hong Kong jeweler said in an e-mail that sales for the Chinese new year were expected to be strong. The change in the zodiac to the year of the horse was auspicious for weddings and having babies, the company said.

“The gold price and jewelry sales in China move in opposite directions,” said Yang from Orient Securities. “The more gold prices drop, the more Chinese aunties buy.”