by
bloomberg
issued
December 17, 2024
A rally in European luxury goods stocks in December is easing the pain for investors after a year marked by concerns about weaker demand in China, a major market.
Luxury goods makers’ stocks are on track for their best month since February as optimism returns after repeated stimulus from China as it seeks to revitalize the world’s second-largest economy. There is. The Goldman Sachs Group Inc. basket that tracks the sector rose more than 8% in December, narrowing its year-to-date decline to just 1%.
These green shoots highlight investors’ sensitivity to China, whose consumers account for almost 15% of the global luxury goods market. The Asian country recently hinted at further stimulus, sparking a September-like rally that quickly fizzled out.
Another expected benefit for luxury demand next year could come from the United States, where President Donald Trump’s economic deregulation and tax cut plans could boost spending.
“China and the US remain important short-term catalysts for many luxury companies,” said Dora Vukručková, portfolio manager at Robeco Suisse. The exact timing of the turnaround is “still up in the air, but we are positive about both.” I’m uncertain,” she said in an interview.
This year, the decline in LVMH Moet Hennessy Louis Vuitton SE, the world’s largest luxury stock, was notable. As recently as mid-2023, the company was Europe’s largest listed company, until being overtaken by pharmaceutical maker Novo Nordisk A/S in mid-2023.
LVMH stock has fallen 14% so far in 2024, its worst annual performance since the 2008 global financial crisis. The company’s stock currently trades at a trailing 12-month forward price/earnings ratio of 22 times, below its trailing average of about 25 times. 2018.
Looking ahead to 2025, investors are pinning their hopes on an economic recovery in the United States, where the president-elect has helped boost both the stock market and the dollar. In the latest sign that demand for luxury goods is recovering, Brunello Cucinelli SpA last week raised its sales growth outlook, with analysts pointing to benefits from the company’s exposure to the U.S. market.
“Recent corporate performance shows improvement for some well-positioned companies in the US and European markets,” said Giles Rothbarth, co-head of European equities at BlackRock Fundamental Equities. “If trends continue, luxury companies may continue to be supported, supported by improved consumer confidence, rising wages and, especially in the US, post-election ‘animal spirits’.”
However, the field still faces challenges. President Trump’s return to the White House could spark a trade war and sour sentiment, while China’s economic slump means more consumers are turning away from the glitz as they wait to splurge post-pandemic. are. Rising prices for luxury goods are also weighing on demand.
Zussanna Pusch, an analyst at UBS Group in London, said: “There are signs of ‘luxury fatigue’ as consumers increasingly question the value for money offered by some brands. Therefore, the possibility of recovery may be limited to 2026.”
The divergence in stock prices also speaks to caution. Investors have particularly avoided companies that plan to turn around. Shares in Kering, which owns Gucci, Salvatore Ferragamo, Burberry Group and Hugo Boss have all fallen by more than 30%. By contrast, some of the companies that serve the wealthiest clients, such as Hermès International SCA and Cucinelli, have seen their valuations rise by nearly 20%.
Given that the path forward for luxury stocks won’t be easy for some, it’s important to be selective.
“I’m definitely not going to buy luxury goods in general,” said Marcel Stoetzel, portfolio manager at Fidelity International. Stotzel said in an interview that he sees 2025 as a “transition year” for the industry, and that betting on a “significant recovery” depends on a recovery in U.S. demand.
