Slumping consumer confidence in China has hampered Hannah Gooch-Peters of Sanlam Investments from buying luxury stocks such as LVMH.
The portfolio manager told CNBC reporter Silvia Amaro that she needed a “larger margin of safety” before investing in the world’s largest luxury goods group.
“A lot of European companies’ growth does come from Chinese consumers, so when we start to see execution failures… it’s almost a perfect storm for them. L’Oreal Because these companies trade at “unusually high prices relative to the growth they provide,” Gooch-Peters said.
Shares in L’Oréal and LVMH Moët Hennessy Louis Vuitton have fallen around 20% and 10% respectively in the past six months as concerns about the power of Chinese consumers weigh on the industry. Peers include Estee Lauder — Gucci-Peters says it’s a mistake in China too — and Gucci owners dry It also dropped significantly during this period.
LVMH’s fourth-quarter sales fell 3% compared with the same period last year, and revenue in Asia (excluding Japan) fell 16%. The group’s chief financial officer said at the time that Chinese consumer confidence was at a low point in the COVID-19 era.
“What we want to see is just increased confidence among Chinese consumers that it’s improving,” Gooch-Peters said. “We need a greater margin of safety before we can get into that part of the market.”
First choice
However, one stock that portfolio managers do like is CME Groupone of the world’s largest derivatives markets.
Gooch Peters said Sanlam Investments bought shares in the company last June given its “very, very good operating margins” and “excellent balance sheet.”
She added that she also liked that the U.S. company’s “cash flow is very, very sustainable, very predictable,” adding that investors “don’t have to worry” about the cost of servicing debt.
CME Group reported record revenue in October and earlier this year, and Chief Executive Terry Duffy said he believed his company was in a better position than rival FMX.
Billionaire Cantor Fitzgerald CEO Howard Lutnick — US President-elect Trump picks Commerce Secretary — launched FMX under his agency BGC Group in September.
Despite the launch, Gooch-Peters believes barriers to entry in the industry remain “extremely high.”
“What differentiates CME from its competitors is that it is primarily trading-based, is a leader in interest rate and futures derivatives, and they have the largest liquidity pool in the world in U.S. Treasury futures, which is why it has so much The real reason for high liquidity.
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