(BFM Bourse) – Beijing could decide on new measures to stimulate the real estate sector and business confidence. LVMH and Hermès are clearly progressing on the Paris Stock Exchange.
When luxury goes, the CAC 40 goes too. This adage is often correct given the total weight of the sector in the Parisian index, of which LVMH, L’Oréal and Hermès constitute the three largest market capitalizations (Kering is tenth).
This is still the case on Tuesday, with a Parisian index which rises nearly 1.3% around 3 p.m., well supported by the progress of Hermès (+ 2.6%) LVMH (+ 2.5%) and in a lesser measure of L’Oréal and Kering (+1.6% both). This movement is not limited to French values since in Zurich, Richemont, which notably owns the Cartier brand, wins 2.3% while in Milan Moncler takes 3.6%.
All of these values are supported by press reports on China with potential stimulus measures. As Bloomberg reports, the People’s Bank of China, the country’s central bank, and the financial regulator, the NFRA, have urged banking institutions to extend repayment facilities on loans for property developers, a crucial sector for growth but struggling for several years.
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China, almost the world’s leading luxury market
Beyond this announcement, the Chinese Securities Journal reported that China was set to “accelerate” its housing support actions, and, in a separate article, that Beijing may also introduce measures to boost business confidence, again according to Bloomberg. The Shanghai Securities News quoted an analyst, Wang Qing, of Golden Credit Rating, who considers that the authorities could relax the rules in terms of real estate purchases or mortgage loans or even take action to lower loan rates.
“Beijing’s extension of support for the real estate sector gives hope for a broader stimulus which, according to the state press, would moreover be imminent. And if indeed there was this ‘package’, it would make it possible to maintain Chinese growth and perhaps to give a new cyclical impetus at the global level”, commented Sarah Thirion, equity strategist at TP ICAP Midcap, in BFM Patrimoine.
“This news supports the luxury sector,” she adds. Luxury stocks are sensitive to information on the macroeconomics and China in particular, the country hot on the heels of the United States as the world’s leading luxury market.
Heading into earnings season
The major players in the market do not communicate their direct exposure to China, but they are found in the Asia Pacific (or Asia) region excluding Japan, which represented 48% of Hermès’ turnover last year, 33% of Kering’s sales and 30% of LVMH’s revenues.
The three companies will publish their first-half results on July 25 (LVMH), July 27 (Kering) and July 28 (Hermès). For Bank of America this earnings season should highlight “the growing gap between winners and losers” in the sector. “The cost of doing business in the luxury sector is rising due to the constant reinvestments made by the biggest brands, which put pressure on smaller or recovery-stage brands,” argues the American bank.
In this context, Bank of America’s preferred securities in this sector are Swatch, Richemont, LVMH and Hermès. The famous saddler should also, according to estimates by the American bank, post the strongest like-for-like growth in the sector in the second quarter (+28%) while LVMH is expected to grow by 18% and 26% for its only fashion and leather goods division.
Julien Marion – ©2023 BFM Bourse
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