European Luxury Firms See Gains Amid China Stimulus Hopes

Shares in European luxury firms gained on Thursday, buoyed by hopes that new stimulus measures in China will help reinvigorate activity in a crucial market for the sector.

Key Performers

• Burberry Group (LON:BRBY): Up by 7.4% in early London trading.
• LVMH Moet Hennessy Louis Vuitton (EPA:LVMH): Increased by 6.5%.
• Kering (EPA:PRTP): Advanced by 7.5%.
• Hermès (EPA:HRMS): Gained 5.3%, supported by resilient demand from wealthy clients.

Background

Earlier this week, Beijing announced new policies aimed at supporting China’s struggling economy and housing sector, including:
– Cuts to interest rates
– Reductions in existing mortgage costs

The People’s Bank of China (PBOC) also introduced a funding swap program worth 500 billion yuan to aid access to funds for purchasing stocks. Additionally, the PBOC will provide up to 300 billion yuan in low-interest loans to commercial banks to support share buybacks.

Analysts’ Outlook

While some analysts called for further measures to stabilize the economy, the luxury sector, heavily reliant on the Chinese market for sales, found solace in these developments. However, challenges remain:
– Weak consumer demand in China
– Slower spending by travelers
– Uncertain U.S. economic outlook

Jefferies analysts predict “no appreciable improvement” in sales for high-end goods in the latter half of 2024, with demand remaining “flattish” in the first half.