Gold jewelry retail stocks declined sharply in both mainland China and Hong Kong markets on Monday after China revoked certain VAT deduction benefits for gold retail sales. Morgan Stanley cautioned that related stocks may experience short-term volatility.

LAOPU GOLD, a representative of the new consumer sector, dropped as much as 9.4% in Hong Kong's morning session, hitting a seven-month intraday low. Established Hong Kong jeweler Chow Tai Fook plunged nearly 12%, while CHJ Jewellery briefly fell by the daily limit in the A-share market.

According to the announcement, starting November 1, the input VAT deduction for non-investment gold jewelry retail companies will be reduced from 13% to 6%. Citigroup estimated that in the worst-case scenario, this policy could raise gold procurement costs for retailers by approximately 7%.

However, if the gold jewelry industry raises prices to pass on cost pressures, the competitive landscape may favor leading companies more, as major brands typically have stronger pricing power and cost control capabilities. Morgan Stanley noted that LAOPU GOLD and Chow Tai Fook are better positioned to adapt—LAOPU GOLD due to its high-end positioning and higher profit margins, while Chow Tai Fook benefits from more substantial inventory reserves.