Nike Tumbles With Investors Wary Over Potential China Fallout

(Bloomberg) -- Nike Inc. investors are sweating over concerns its fast-growing Chinese retail business could falter amid calls to boycott related to company’s position on cotton from the contentious Xinjiang region.

Shares of the Beaverton, Oregon-based sportswear company fell as much as 5.4% in Thursday trading, the most intraday since October. Other companies caught up in the controversy, including Hennes & Mauritz AB and Burberry Group Plc, also fell.

“The reason that the market’s reacting is they’re worried about topline impact,” Aneesha Sherman, an analyst at Bernstein, said by phone. “It’s more of a risk for luxury players, because they depend more on Chinese demand, but even for mainstream, it’s a fast-growing region and the discretionary spend levels are going up, so it is an important region not to lose market share in.”

Read more: H&M, Nike Face Boycotts in China as Xinjiang Dilemma Deepens

The controversy, which has been gaining attention this week, stems from the issue of whether North American and European companies will continue to buy cotton from the Xinjiang region amid allegations of forced labor. The Chinese government has rejected the claims, with Foreign Ministry spokeswoman Hua Chunying on Thursday calling the reports “malicious lies fabricated by anti-China forces.” Companies like H&M and Nike are suddenly facing a dilemma: Embrace cotton from the region and come under attack in their home markets, or reject it and risk a boycott in the crucial Chinese market.

China has grown increasingly important to global consumer companies, especially as its population of more than 1 billion gains upward mobility and spending power. At Nike, Greater China has generated from about a fifth to a quarter of global sales in recent quarters, while North America -- still its biggest market -- continues to lose prominence.

With U.S. and European brands in the spotlight, Chinese firms are now rallying around Xinjiang, which produces more than 80% of the country’s cotton. Local companies that said they’ll continue to source the material from the region are being rewarded in the stock market, including Anta Sports Products Ltd., the Chinese sneaker giant that owns the Fila brand.

“What this may do is accelerate some of the share shift that was already starting to happen as the local, fast-growing Chinese brands in fast fashion and sportswear start to threaten the market shares of the likes of Inditex and H&M in that region,” analyst Sherman said.

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