Luxury goods purveyors are confronting the looming spectre of disappointing sales growth in China, adding further downward pressure on their stock valuations, as per a report by Barclays Plc, which has accordingly revised its rating on the French conglomerate LVMH and the broader industry.
Barclays analysts, led by Carole Madjo, noted in a recent report, “The luxury goods sector has experienced a notable de-rating over the past month, a trend we attribute to the deteriorating macroeconomic indicators emanating from China and the gradual return to a more conventional growth trajectory.” These observations come in the wake of the team’s recent visit to China.
Shares of LVMH witnessed a 0.3% decline, trading at €727.20 at 9:33 a.m. in Paris, albeit recovering slightly from a decline of as much as 1.3%. The stock, at its lowest point for the day, had receded by 20% from its zenith at €902, achieved in April.
Madjo opted to revise her rating on LVMH Moet Hennessy Louis Vuitton SE from overweight to equal-weight and correspondingly reduced the stock’s price target to €835 from €932. The Barclays analysts raised concerns about the potential for disappointment in the latter half of the year, especially following the company’s inability to meet margin estimates at the close of the previous year and in the initial half of 2023.
The ripple effect of this rating change extended to the broader industry, with Barclays downgrading its industry view from positive to neutral. In doing so, the analysts underscored LVMH’s significance as a sector proxy.
During the initial half of the year, luxury stocks took the lead in fuelling the European market’s rally, but they have since witnessed a waning of momentum. While LVMH shares have exhibited a year-to-date gain of 7.0%, France’s CAC 40 blue-chip index has surged by 11%.
In response to this development, shares of Hermes International inched up by 0.6%, while Compagnie Financiere Richemont SA, the proprietor of Cartier, remained largely unchanged. The evolving dynamics of the luxury goods market, particularly in China, have sparked significant adjustments in market perceptions and valuation strategies, a trend that Barclays suggests warrants a measured and cautious approach for investors in the sector.