The boycott of Western retail plays for their pledge not to use Chinese cotton allegedly produced with forced labor has sent a shock wave through European stock markets.
H&M Hennes & Mauritz
shares each have dropped 11% to 13% below their March peaks, as Chinese commercial platforms begin to drop their products for participating in what has called the Better Cotton Initiative.
“In short, no Western corporates can boast ESG [environmental, social and corporate governance] credentials and chase a Chinese consumer. Taking sides between shareholders and clients will cost a bundle,” say analysts at AlphaValue, an independent research service.
The analysts say European luxury players carrying a combined market cap of €530 billion and European automobile makers worth €435 billion could be next.
The challenge, they say, will be intense. “European CEOs and boards will have to take sides. The ESG requirements mean that many a European management will find it impossible to pretend to navigate in between, satisfying Chinese new masters and the rule of law at the same time. Remember that the Uighurs are officially victims of a genocide. That cannot be ignored by corporates,” they say.
The firm says 60 companies it follows get at least 15% of their revenue from China, or 10% of their income. These firms have a price-to-earnings ratio of 27 vs. 20 for all the companies it covers. “2020 business in China was too good to last. Time to brace as these stocks trade at superior multiples,” they say.