{"id":55195,"date":"2023-08-31T04:59:20","date_gmt":"2023-08-31T08:59:20","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/luxury-stocks-are-going-out-of-fashion-its-the-china-syndrome\/"},"modified":"2023-08-31T04:59:22","modified_gmt":"2023-08-31T08:59:22","slug":"luxury-stocks-are-going-out-of-fashion-its-the-china-syndrome","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=55195","title":{"rendered":"Luxury Stocks Are Going Out of Fashion. It’s the China Syndrome."},"content":{"rendered":"
\n

Luxury stocks are at risk from China\u2019s slowdown after riding high for months on optimism that the rich would return in force to shopping in the world\u2019s second-largest economy and to traveling abroad to browse in the finest stores.<\/p>\n

But how big is the risk?<\/p>\n

\n

Not long ago, for example, Wall Street considered shares in
\n LVMH
\n (ticker: MC. France)\u2014the French company owns dozens of high-end brands, from fashion and fragrances to wine and watches\u2014to be one of the best plays on the post-Covid reopening of China. <\/p>\n

The logic made sense: Wealthy Chinese shoppers would come out in droves after the country lifted its zero-Covid policy in late December\u2014both at home and abroad. After all, they had been big spenders before the pandemic. <\/p>\n

Now, though, that reasoning is being questioned as evidence of an economic slowdown in China piles up. Chinese imports and exports are down, a sign that demand\u2014both international and domestic\u2014is waning. The loudest alarm sounded a couple of weeks ago when consumer spending for July fell so much that the country slipped into deflation. <\/p>\n

\u201cWeak China macro data suggest a much softer consumption recovery post Covid-reopening than the strong rebound seen in the U.S. and Europe in 2021-22 and in Japan more recently,\u201d Rogerio Fujimori, an analyst at
\n Stifel,<\/span>
\n wrote in late July. <\/p>\n

Still, China is standing firm on a 5% increase in annual gross-domestic product (GDP)\u2014with the help of government stimulus. Analysts and investors, however, consider a 5% growth rate simply enough to get the economy on track but not nearly enough to jump-start it. <\/p>\n

The uncertainty has certainly weighed on luxury stocks in the past few months. LVMH, which boasts the white-glove brands of Tiffany, Dior, and TAG Heuer, again is a prime example. Shares are down more than 10% from their April high of 900 euros ($984). <\/p>\n

And others in the luxury sector are faltering, too.
\n Cie. Financi\u00e8re Richemont
\n (CFR. Switzerland, CFR. South Africa), which owns Montblanc and Cartier, is down nearly 19% since its peak of more than 155 Swiss francs ($177) in mid-May.
\n Kering
\n (KER. France), which owns Gucci and Balenciaga, soared to 600 euros ($655) at the end of March; now, the stock is off\u00a0<\/strong>almost 17%.
\n Herm\u00e8s International
\n (RMS. France) peaked later, at above 2,016 euros ($2,202) on July 31, but has lost more than 4% in just the past month. <\/p>\n

Despite the steep losses and China\u2019s discouraging economic numbers, all four stocks\u2014LVMH, Richemont, Kering, and Hermes\u2014have an average rating of Buy from analysts surveyed by FactSet. And their average target prices imply upsides of 19%, 33%, 24%, and 6%, respectively.<\/p>\n

The most likely explanation for the head-scratching rating: It is better to be exposed to shoppers in Asia\u2019s largest economy than not, especially when analysts expect demand in the U.S. to soften as well. Put another way: Missing out on China\u2019s growth is a better risk than China\u2019s slowdown.<\/p>\n

Stifel\u2019s Fujimori put a \u201cgradual comeback of the all-important Chinese clientele\u201d at the top of his list of reasons that Richemont is set \u201cto navigate better than most through a period of softening U.S. demand.\u201d He rates the stock Buy. <\/p>\n

Jean Danjou, an analyst at ODDO BHF, cited \u201cclear room for improvement on the group\u2019s overall positioning in Asia-Pacific and China\u201d as an unfavorable trend for Kering, which he rates Neutral.<\/p>\n

A prolonged deep slowdown\u2014and certainly a financial crisis\u2014would weigh on China\u2019s wealthy. For now, at least, the risks only make luxury stocks less fashionable\u2014and not an investing faux pas.<\/p>\n

Write to Jack Denton at jack.denton@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Luxury stocks are at risk from China\u2019s slowdown after riding high for months on optimism that the rich would return in force to shopping in the world\u2019s second-largest economy and to traveling abroad to browse in the finest stores. But how big is the risk? Not long ago, for example, Wall Street considered shares in […]<\/p>\n","protected":false},"author":1,"featured_media":55196,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-55195","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nLuxury Stocks Are Going Out of Fashion. 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