The catalyst for this year’s luxury gains, as in many recent years, is China. Coming out of the world’s strictest lockdowns, Chinese shoppers are splurging on luxury handbags and jewellery. LVMH’s soaring sales shows that demand for highly priced goods remains unabated even as a global economic slowdown looms.
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Hermes International’s quarterly sales jumped as the maker of Kelly bags continued to see strong demand from Chinese customers. First-quarter revenue was up 23 per cent, Hermes said in a statement on Friday. Analysts had expected a gain of 16 per cent. Asia-Pacific excluding Japan was up 22.5 per cent. Hermes said it had a “very good” Chinese New Year.
The rally in luxury shares has cemented Paris’s standing as Europe’s biggest stock market, eclipsing London. The benchmark CAC 40 Index is on a record-setting spree, with gains of more than 15 per cent this year, outpacing other major markets.
The recent gains have taken LVMH’s valuation to 26 times forward earnings, twice that of the CAC 40. That doesn’t bother Nicolas Domont, a fund manager at Optigestion in Paris.
‘This illustrates the rise of wealthy people across the world, of a polarised society.’
Gilles Guibout, AXA Investment Managers
Chinese shoppers are splurging on luxury items after coming out of the world’s strictest lockdowns.Credit: Anthony Kwan/Bloomberg
“It has become a must-have stock,” said Domont. “If it continues to deliver, I don’t have any problem paying the premium.”
LVMH shares closed 5.7 per cent higher at 883.9 euros on Thursday.
Sceptics say the durability of luxury sales in recent years has yet to be tested by a long economic downturn. In a recession, all but the wealthiest of shoppers are likely to curb their spending, they say.
“I have been dead wrong advising clients to stay away from luxury, but I am convinced [and stubborn] that something has to give in and that the risk-reward is still unfavorable,” Laurent Lamagnere, equity sales at Alphavalue in Paris, wrote in a note to clients on Thursday.
“I still don’t buy the idea that luxury is immune to consumption.”
Bloomberg
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