Mon, Dec 18, 2023 page12

• Luxury brands might not see spending jump next year

  • Bloomberg
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  For LVMH Moet Hennessy Louis Vuitton SE and other luxury-goods stocks, next year is shaping up to be this year, but in reverse.

  Unlike this year, when China’s reopening fueled a splurge on pricey handbags and jewelry before running out of steam, investors expect next year to start on a weak footing before a revival in the second half. As BNP Paribas SA analysts said, next year would likely be “a game of two halves” for luxury stocks such as Richemont SA and Gucci owner Kering SA.

  Right now, the buoyant start to this year that briefly pushed LVMH past a US$500 billion market value is a distant memory. Sentiment has been soured by a slew of economic numbers pointing to a fading recovery in China, whose consumers currently account for about a quarter of the estimated 362 billion euro (US$394.9 billion) global luxury market and potentially 40 percent by 2030.

  

  Pedestrians walk past a large luxury good advertisement in Shanghai, China yesterday. China’s economic recovery remained beleaguered by weak demand and a lingering property crisis last month, putting more pressure on Beijing to roll out supportive policies to juice growth.

  Photo: Bloomberg

  A pick-up in demand from Chinese shoppers would be key to validating expectations of a better second half.

  “Yes, it’s volatile at the moment,” GAM UK Ltd investment manager Flavio Cereda said. “By the time we get to Easter, I would be surprised if we didn’t have signs that this is starting to reverse.”

  Luxury’s momentum during the COVID-19 pandemic has burnished its enduring appeal, prompting comparisons to the dominance of technology stocks in the US. A key attraction is the fact that iconic brands enjoy a pricing power that typically beats inflation and protects their profit margins.

  Shoppers cannot find enough of the coveted handbags made by Hermes International SCA, for instance, with prices that could go from about US$8,000 to well into the tens of thousands of dollars. The company’s shares have shown none of the weakness of peers, rising to record levels in the past week.

  Yet with the likes of LVMH and Richemont still more than 15 percent below this year’s peak, some investors are looking for an opening to load up on stocks.

  “We were reluctant to invest when valuation was at the top earlier this year,” Tikehau Capital SCA head of capital markets strategies Raphael Thuin said. “Given the market pullback, we are starting to redeploy in the sector.”

  UNFLATTERING

  Still, an unflattering first quarter is in the offing after Chinese consumers’ buying reached a peak in the comparable period this year, CLSA Ltd analyst Chris Gao (高馨兒) said.

  Those comparisons are to ease in the second half of next year, Bloomberg Intelligence analyst Deborah Aitken said. Sentiment would be aided by growth in tourism and a demand pick-up from Chinese consumers, pushing spending beyond its 2019 revenue base and their global market share to 25 percent, she said.

  On the flip side, shoppers who supported luxury goods during the super-cycle might not return, instead turning toward experiences, Telsey Advisory Group chief executive officer Dana Telsey said.

  Brokers are also taking a more sober look at the sector due to the prospect of weaker demand and an uncertain economic outlook.

  Still, luxury companies are usually much more resilient than other consumer categories due to the strength of their brands, Cereda said.

  “Short term, I don’t see these momentum investors coming back, as there is a lack of catalysts,” BNP Paribas Asset Management portfolio manager Olivier Rudigoz said. “For long-term investors however, we think it’s an industry that is very well positioned, notably toward the rising middle class of China and other emerging countries.”
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