(BFM Bourse) – The American bank has revised its opinion on the sector to “outperformance” driving the prices of LVMH, Richemont and Hermès. The lull in bond yields may also support these stocks.
With the dizzying decline that luxury has experienced since mid-July, with the pan-European Stoxx Europe Luxury 10 index falling by 15% over the period, even relatively thin positive signals can constitute a pretext to buy the sector.
This Friday, LVMH gained 3.4%, L’Oréal, a cosmetics group associated with the world of luxury, took 2.06%, Hermès advanced 1.9% and Kering grabbed 1.3% around 3:10 p.m. In Zurich, the Swiss Richemont, owner of Cartier, gained 3%.
The slight lull in bond yields may provide a factor of support to the sector. The rate on the 10-year US Treasury bill is currently moving at 4.538% compared to 4.578% on Thursday evening, and it had even exceeded 4.6% during the week. The German Bund rate stands at 2.852% compared to 2.931% on Thursday, a day during which it flirted with 3%.
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Goolsbee’s statements
“Luxury stocks have been quite battered by the rise in rates,” estimates an analyst who cites a statement from a member of the American Federal Reserve (Fed) to explain the relative easing of rates.
As reported by Reuters, Chicago Fed President Michael Goolsbee estimated that inflation could very well return to acceptable levels without unemployment soaring.
“Believing too strongly in the inevitability of a significant trade-off between inflation and unemployment carries the serious risk of a short-term policy error,” the central banker said in a critique of the “traditionalist view” according to where slowing inflation implies significant economic pain in the form of higher unemployment and slower growth, or even a recession.
The sector’s other likely point of support comes from Bank of America. This Friday, the American bank’s strategists reviewed the different investment themes to be played on the equity markets.
Less convinced by so-called “value” stocks (companies significantly discounted on their stock market multiples), strategists have revised their opinion on luxury, moving from “market weighting” to “overweighting”, thus sending a sign of confidence.
Luxury has potential for Bank of America
For them, the recent underperformance of the sector means that the valuation of this industry now fully integrates the potential decline in global activity that the bank anticipates via the PMI indices. “Furthermore, as a growth sector, the relative performance of luxury goods should benefit from the further decline in real bond yields that we expect,” the strategists argue.
“Our macroeconomic assumptions imply an increase in the relative price of the sector over our 12-month forecast horizon, with potential outperformance of around 10% by the third quarter of next year,” they continue. Luxury thus joins chemicals among the cyclical sectors where Bank of America is “overweight”.
At the start of the week, Bank of America’s equity analysts reviewed the current situation, notably downgrading Kering to “underperformance”, judging that the context of normalization of demand made the plan more complicated. recovery of Gucci. On the other hand, they advised buying LVMH and Hermès because of their defensive strengths.
“In this context of normalization of demand, we have a preference for companies which are exposed to a wealthier clientele, or which have historically demonstrated resilience throughout the cycle (Hermès, LVMH, Brunello Cucinelli & Zegna, all recommended for purchase)”, underlined these analysts.
Julien Marion – ©2023 BFM Bourse
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