Shares in Hermès, Cartier’s parent company Richemont and LVMH soared more than 15% this week. The jump came as Chinese authorities pledged to step up economic stimulus to combat the country’s economic downturn. European luxury goods stocks have struggled this year due to weak demand in China.
European luxury goods stocks rose sharply this week as China’s package of stimulus measures raised hopes for more spending.
Shares in Hermès, Cartier’s parent company Richemont and LVMH soared more than 15% in five days.
In an unusual press conference on Tuesday, three senior Chinese officials announced a wide range of stimulus measures, including interest rate cuts, liquidity support and lower bank reserve requirements.
The move sent stock prices soaring across the board and proved particularly promising for the luxury goods sector, which has struggled for months due to weak demand in China.
Chinese consumers have been reluctant to spend in recent months, despite rising disposable income. Retail sales last month rose just 2.1% from a year earlier, lower than economists’ expectations of 2.5%.
European luxury brands cited slowing demand in their latest quarterly earnings reports. Burberry said sales in mainland China were down 21% year-on-year, while Hugo Boss said the Chinese market was proving to be “particularly challenging”.
On Monday, the day before the stimulus announcement, Bank of America analysts lowered their price targets for luxury stocks by about 20% on average.
It also downgraded four luxury goods stocks to neutral and downgraded another from neutral to underperform, leaving only three luxury goods stocks with a buy rating.
“The decline in revenue growth over time can be attributed to weak concurrent consumption (i.e. around 70% of revenue) across the US, EU and China. , China’s weakness is just beginning,” the analysts wrote in the paper. Monday memo.
Part of this decline in demand is a result of Chinese consumers shifting significant spending overseas, particularly to Japan, where a weaker yen has further stretched Chinese shoppers’ money.
Investors now appear to be counting on stimulus to bring luxury spending back home.