H&M’s Xinjiang Setback Has Tiny, Loss-Making China Peers Surging

Shares of some tiny Chinese apparel companies are among the top performers in the country’s stock market over the last three days, as several of their foreign peers face a backlash over their stance on using cotton sourced from the contentious Xinjiang region.

Shanghai Metersbonwe Fashion & Accessories Co. and Ribo Fashion Group Co. each surged 33% since Wednesday’s close to feature among the biggest gainers in about 4,000 Chinese A-shares during the period. The stocks jumped after Chinese social-media users last week called for a boycott of Swedish retailer Hennes & Mauritz AB, having found an undated company statement about accusations of forced labor in Xinjiang. Those calls quickly spread to other foreign brands including Nike Inc. and Burberry Group Plc.

The operating performance of the two Chinese companies speaks to the speculative nature of the recent rally in their stocks.

Shanghai Metersbonwe said in October that it will post a loss as much as 820 million yuan ($125 million) for 2020. That would mark a second year of losses, which could trigger a delisting-risk warning from the stock exchange. Ribo Fashion issued a profit warning in January, citing lower sales due to the pandemic and one-off losses from a unit.

H&M’s Xinjiang Setback Has Tiny, Loss-Making China Peers Surging

“It’s easier for short-term investors to trade these two stocks with poor earnings and few institutional investors,” said Zhang Gang, an analyst at Southwest Securities Co. “The speculative buying on nationalist sentiment is irrational and would be unsustainable.”

Further, it would be “hard to shake the consumption habits” of customers of foreign brands, he said.

Meanwhile, shares of Shanghai Metersbonwe continued their rally on Tuesday, surging by the daily limit. Ribo Fashion climbed as much as 7.7% before paring the bulk of its gains.

Cotton producer Xinjiang Sailimu Modern Agriculture Co. has emerged as another big beneficiary as foreign brands grapple with the backlash. Its stock also jumped 10% on Tuesday, adding to a 33% surge in the previous three sessions.

Luxury Companies at Risk of New Tensions With China: Bernstein

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