Register now for FREE unlimited access to Reuters.comBEIJING, Sept 13 (Reuters) – Zhou Changchang likes to spend his spare time cruising along the streets of China’s capital with his cycling club friends, on his Tiffany Blue bicycle made by the British company Brompton.The 42-year-old teacher is part of a growing army of cycling enthusiasts in China, who are splashing out on premium bicycles made by the likes of Brompton, Giant and Specialized, fuelling a market that consultancy Research & Markets estimates could be worth $16.5 billion by 2026.Social media and e-commerce platforms say there has been a surge of interest in cycling over the past year and sales of bicycles and gear are booming.Register now for FREE unlimited access to Reuters.comTypically, Chinese cyclists will pay more than 13,000 yuan ($1,870) for an inner-city, high-end foldable bike made by the likes of Brompton. High-performance road bikes, made for longer journeys, start at around 10,000 yuan ($1,450) and can go many times higher.Last month, media reported that a bicycle made by luxury brand Hermes sold for 165,000 yuan ($24,500).”The majority of riding hobbyists are willing to splurge,” e-commerce platform JD.com said last month.It said road bike sales on its platform had more than doubled from June to August compared with the same time last year, while riding apparel sales had jumped 160%.China has had a long love affair with bicycles and was once known as the “kingdom of bicycles”.For decades, bikes made by the likes of the Flying Pigeon company filled the streets.Cycling fell out of fashion when a growing middle class turned to cars but bike manufacturers saw a revival in 2014 as bike-sharing companies like Mobike and Ofo sprang up to flood cities with their fleets, offering rides as cheap as 1 yuan.Zhou, like many cyclists, said he got into biking to get fit. COVID-19 and its lockdowns also created a urge for the open road.”I really longed for the outdoors and fresh air,” said Shanghai office worker Lily Lu who went out and ordered a Brompton bike for 13,600 yuan ($1,965) the day after she was released from a three-month lockdown.As the craze gathers pace, manufacturers are struggling to meet demand. Lu said she had to wait two months to get her bicycle. Brompton did not respond to a request for comment.China’s Pardus, which makes racing bikes that can cost more than 30,000 yuan ($4,335), said sales doubled from last year and its factory was operating around the clock.”Everything is out of stock,” said Pardus branding director Li Weihai.
($1=6.96 yuan)Register now for FREE unlimited access to Reuters.comReporting by Sophie Yu, Brenda Goh; Editing by Robert BirselOur Standards: The Thomson Reuters Trust Principles. .
Reuters GraphicsOn Tuesday, stocks shrugged off the rise in yields, with the S&P 500 ending up 1.6% on the day. Still, the S&P 500 is down 6.4% this year, while the yield on the 10-year TIPS has climbed more than 100 basis points.”Real 10-year yields are the risk-free alternative to owning stocks,” said Barry Bannister, chief equity strategist at Stifel. “As real yield rises, at the margin it makes stocks less attractive.”One key factor influenced by yields is the equity risk premium, which measures how much investors expect to be compensated for owning stocks over government bonds.Rising yields have helped result in the measure standing at its lowest level since 2010, Truist Advisory Services said in a note last week.
Reuters GraphicsHEADWIND TO GROWTH SHARESHigher yields in particular dull the allure of companies in technology and other high-growth sectors, with those companies’ cash flows often more weighted in the future and diminished when discounted at higher rates.That may be bad news for the broader market. The heavy presence of tech and other growth stocks in the S&P 500 means the index’s overall expected dividends are weighted in the future at close to their highest level ever, according to BofA Global Research. Five massive, high-growth stocks, for example, now make up 22% of the weight of the S&P 500.At the same time, growth shares in recent years have been highly linked to the movement of real yields.Since 2018, a ratio comparing the performance of the Russell 1000 growth index (.RLG) to its counterpart for value stocks (.RLV) – whose cash flows are more near-term – has had a negative 96% correlation with 10-year real rates, meaning they tend to move in opposite directions from growth stocks, according to Ohsung Kwon, a U.S. equity strategist at BofA Global Research.Rising yields are “a bigger headwind to equities than (they have) been in history,” he said.
Top five stocks market cap as percentage of S&P 500Bannister estimates the S&P 500 could retest its lows of the year, which included a drop in March of 13% from the index’s record high, should the yield on the 10-year TIPS rise to 0.75% and the earnings outlook – a key component of the risk premium – remain unchanged.Lofty valuations also make stocks vulnerable if yields continue rising. Though the tumble in stocks has moderated valuations this year, the S&P 500 still trades at about 19 times forward earnings estimates, compared with a long-term average of 15.5, according to Refinitiv Datastream.“Valuations aren’t great on stocks right now. That means that capital may look at other alternatives to stocks as they become more competitive,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.Still, some investors believe stocks can survive just fine with rising real yields, for now. Real yields were mostly in positive territory over the past decade and ranged as high as 1.17% while the S&P 500 has climbed over 200%.JPMorgan strategists earlier this month estimated that equities could cope with 200 basis points of real yield increases. They advised clients maintain a large equity versus bond overweight.”If bond yield rises continue, they could eventually become a problem for equities,” the bank’s strategists said. “But we believe current real bond yields at around zero are not high enough to materially challenge equities.”Register now for FREE unlimited access to Reuters.com