LVMH and other luxury stocks will start weak in 2024

Bloomberg – For LVMH and other luxury stocks, 2024 will be 2023 in reverse.

Unlike this year, where China’s reopening led to a surge in expensive handbags and jewelry before they sold out, Investors expect 2024 to start weakly before rebounding in the second half. As BNP Paribas analysts put it, next year is likely to be a “game of two halves” for luxury stocks such as Richemont and Kering SA, which owns Gucci.

For now, the booming start to 2023, which briefly took LVMH to more than $500 billion in market capitalization, is a distant memory. The mood deteriorated due to a series of economic figures indicating a fading recovery in China, whose consumers currently represent about a quarter of the global luxury products market, which is valued at about 362 billion euros ($397 billion), and may reach 40% in 2030. .

A recovery in demand from Chinese buyers will be key to validating expectations for a better second half.

He added: “Yes, the situation is volatile now.” Flavio Cereda, Investment Director at GAM UK Ltd. “By Easter, the market will have recovered.” “By the time we get to Easter, I would be surprised if we don’t have signs of this starting to ease.”

The boost to luxury products during the pandemic has enhanced their enduring appeal, drawing comparisons to the dominance of technology stocks in the United States. The main attraction is the fact that popular brands have pricing power that often exceeds inflation and protects their profit margins.

Buyers never get tired of buying what they want Hermes international bagsFor example, prices range from $8,000 to tens of thousands of dollars. Its shares did not show weakness among its counterparts and reached record levels last week.

However, with stocks like LVMH and Richemont still down more than 15% from their 2023 highs, some investors see an opportunity to buy shares.

“We were hesitant to invest when valuation was at its highest at the beginning of the year,” he says. Raphael Thawne, Head of Capital Markets Strategies at Tikehau Capital. “Given the market downturn, we have started reallocating in this sector.”

Overall, we still have an uninteresting first quarter, after Chinese consumer purchases peaked in the same period this year, according to Chris Zhao, analyst at CLSA Ltd.

These comparisons are expected to decline in the second half of 2024, according to Bloomberg Intelligence analyst Deborah Aitken. It says confidence will be supported by tourism growth and a rebound in demand from Chinese consumers, which will push spending beyond its 2019 income base and global market share by up to 25%.

On the flip side, shoppers who supported luxury during the supercycle may not return and may opt for experiences, warns Dana Telsey, CEO of Telsey Advisory Group.

Stockbrokers are also taking a more measured approach to this sector due to the potential for weak demand and an uncertain economic outlook.

Recently, JP Morgan and Morgan Stanley downgraded LVMH to neutral, while HSBC dropped all of its trading targets for the sector, saying the industry is not recession-proof.

However, luxury companies tend to be more flexible than other consumer categories because of the strength of their brands, GAM’s Sereda said.

“In the short term, I don’t expect this momentum to return to investors as the catalysts disappear,” says Olivier Rodiguz, portfolio manager at BNP Paribas Asset Management. “However, for long-term investors, we believe it is an industry that is very well positioned, especially vis-à-vis the growing middle class in China and other emerging countries.”

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