European luxury suffers the scourge of China. The real estate crisis in which the Asian giant is involved and the weak economic data hit the listed companies in this sector, which see their main client experiencing a reopening after Covid that is not as buoyant as expected. This situation drags down the heavyweights of exclusivity, who drag down the August corrective and leave more than 35.5 billion so far in September. Only LVMH, a conglomerate that brings together brands such as Louis Vuitton, Fendi or Bvlgari, has lost 5.1% of its value in seven sessions or, in other words, more than 20,000 million since the beginning of the month.
The cut in capitalization leads it to lose the barrier of 400,000 million and stop holding the title of the largest listed European firm, after the Danish pharmaceutical company Novo Nordisk has overtaken it. The list includes other colossi with a French accent such as Hermès International (4,770 million, 2.3% less), Kering (3,230 million, 5.2% less) or Pernod Ricard (1,994 million, 4.3% less). Outside the French country, the Swiss company Richemont (Cartier) stands out, losing 4,900 million Swiss francs (around 5,206 million euros) and the English company Burberry, which has lost 2.6% so far this month. equivalent to 225 million pounds (about 298 million euros). Rolls-Royce, for its part, distances itself from this trend after accumulating an annual ‘rally’ of close to 140%.
In this context, investors question the theory that luxury does not understand recessions in the face of a Chinese economy that is suffering. The difficulties faced by the real estate developer Evergrande, which is waiting to vote on its restructuring plan at the end of September to refinance its offshore debt after filing for bankruptcy law in the US with the aim of protecting the company’s assets in the United States, or Country Garden, which has been expelled from Hang Seng, Hong Kong’s main stock index, after avoiding default, set off alarm bells.
Without going any further, the Central Bank of the People’s Republic of China has recently lowered the interest rate on its one-year bank loans by fifteen points, to 2.5%, while it has reduced the one-year credit rate one tenth up to 3.45%. The objective is to ‘sustain’ the brick while some Chinese cities partially or completely withdraw the restrictions imposed on home purchases. In this context, the outlook for luxury goods for 2023 may be disrupted.
The market had placed great expectations on the opening of borders after three years of isolation due to the pandemic. Now the key is how much Chinese activity will slow down. Rating agencies such as Moody’s have chosen to maintain the GDP forecast for 2023 at 5%, while warning of a scenario full of “obstacles” to continue with that level of growth that leads them to revise downward their estimate for 2024 by half a percentage point, up to 4%. Other factors such as the crisis of confidence or the aging of the population also enter into this economic brake equation, which have a direct impact on consumption.
The symptoms of stock market slowdown have caused 180 billion dollars (about 167 billion euros) to disappear since the maximum peak recorded last July, according to data collected by ‘Bloomberg’. This capital flight occurs after a bullish first part of the year in which prices sold above what the analyst consensus estimated. After the correction in recent weeks, the potential has expanded, although the attractiveness is quite uneven, with the aforementioned Hermès being the one with the fewest purchase recommendations (barely 37%, compared to the 48% that is committed to maintaining). Everything indicates that the falls in the stock market par excellence of the Old Continent will persist while the problems in China and inflation will not offer signs of improvement.
