What is happening in China directly affects the price of companies in the luxury sector, and this was seen after the announcement of the Asian country’s recovery plan, with a 3% increase in the index which groups together European companies of this segment. On Tuesday, the Stoxx Luxury recorded what would be the second largest increase of the year (the first was at the beginning, in January, of 6.8%), in a year where high-end companies do not have an easy life. on the stock market. Over the year, the European sector lost around 1.4% and is down almost 18% compared to the highs reached in March.
The reaction came after the Chinese government announced a set of historic measures aimed at restoring Chinese agents’ desire to consume and invest. Specifically, The recovery plan presents support measures for the financial sector, real estate and the stock market to revive the recovery of the world’s second-largest economy, amid concerns over its ability to meet its growth target this year.
Following the announcement of the plan aimed at getting China out of the spiral of deceleration and deflation in which the country is plunged, the luxury giants of the Old Continent such as Kering (owner of brands such as Gucci, Saint Laurent, Bottega Veneta or Balenciaga), LVMH or Hermès they rebounded by more than 4% on the stock market (and up to 5.3% in the case of Kering), and it is also the second largest annual increase for Kering or LVMH.
The significant weight of the Asian consumer in the luxury market would explain this strong relationship between the economic health of the country and the companies in this segment. In fact, the The CAC 40, the main reference in France, also reached positive territory during the year Tuesday and increases by just over 1% in 2024, with the push luxury brands, which have a significant weight in the composition of the French stock market. The CSI 300, China’s main indicator, also rebounded strongly, with a 4.3% increase on the day, the largest of the year. This strong rebound distances the Asian benchmark index from the five-year lows it reached the previous week. Over the year, the cumulative losses of the CSI 300 are 2%.
Returning to European luxury brands, the annual balance (of all except Hermès) remains negative despite Tuesday’s strong rebound. Burberry is the one suffering the biggest setback, with a 55% annual drop in its share value. The legendary trench coat company is the most affected overall, since it is the only one to benefit from a sell recommendation by expert consensus and the one to see a larger drop in its earnings estimates. The presentation of its 2024 financial year results is largely responsible for this deterioration in valuations, since the company announced profits down 34% in a “context of slowing luxury demand,” the company itself indicated.
On the other side of the table, in this sense, there would be Pernod Ricard, the company with the biggest increase in its profit outlook of the year among the European giants of the sector. Its profit forecast increases by 36% compared to what was estimated in January, and the FactSet consensus now expects a net profit of 3.116 million euros. Hermès would also be included in this list of companies that see an improvement in their profit forecast (the only one, with Pernod), with an increase of 2.7% compared to what was estimated in January.
On recommendation, LVMH is the only one to maintain its position. Hermès, Kering and Pernod Ricard are holding their ground, and Burberry, as expected, is selling. Since January, the raincoat company has been advised to liquidate its positions, which it has raised again four years later.
