The current figures from the luxury goods industry show growth, despite all the prophecies of doom. Stocks from the luxury goods industry are considered solid big ships – they generate big returns, especially over the long haul. We know this as experienced investors in this sector. We and many investors have been relying on stocks with that certain something for years and yet there were price disappointments in this segment, especially last year.
LVMH with a second record year in a row and it shows again that there is always a market for something special. The fact that this assumption is correct was recently demonstrated by the shares of the French luxury goods group: after a record year for the company listed in the CAC 40, the shares achieved the largest price jump in around 15 years – by around 14 percent for the group includes the brands Louis-Vuitton, Dior, TAG Heuer and Dom Perignon, among others, after the figures were published on the stock exchange.
This list alone symbolizes what we value so much about luxury goods companies: they are broadly diversified. Whether it’s champagne, high-quality watches, luxurious clothing or accessories that make a difference – anyone who likes luxury will find something to their taste at LVMH, but also at other broad companies in the luxury goods industry. With LVMH now having its second record year in a row, the entire luxury goods industry is likely to receive more support from investors again. In recent months, doubts have increased as to whether the weak growth in China and the generally unclear economic situation would also have an impact on the luxury market. However, sales growth of nine percent to 86.2 billion euros last year at LVMH speaks a different story. Net profit also rose quite encouragingly, at around eight percent to 15.2 billion euros.
Chinese support luxury goods industry
LVMH CEO Bernard Arnault expects further growth in 2024, explicitly also in China. The middle class in particular is striving to move up. The share of private consumption in economic output in the Middle Kingdom is still well below the level of western industrialized countries. But incomes, especially in the middle class, are growing rapidly: between 2013 and 2022, per capita income increased by 8.1 percent annually.
By 2025, more than half of Chinese households could be middle class – giving luxury goods stocks a tailwind. Because: If you talk to people who live in China, you will always hear that the Chinese work a lot, but also treat themselves to a lot in return. Examples include lavish business meals, where the focus is often on wellness and luxury goods. Large companies in the luxury goods industry in particular are already ideally positioned to benefit from growth in China and other regions of Asia.
Good reasons for the luxury goods industry
Even though the supposed crisis in the Chinese stock market is currently in the newspapers, investors need to be clear about a few things. Firstly, China’s economy is still growing, and secondly, the Chinese sales market for luxury goods is so heterogeneous that it would survive even the worst case scenario in the Chinese real estate market after a short dip. The consistent growth of China’s per capita income supports the luxury sector. In addition, demand from Europe and especially from the USA is also robust, especially since the US economy, despite all the prophecies of doom, is much more stable than many “experts” expected a few weeks and months ago.
The luxury goods industry also benefits from the fact that it has long since shed its outdated image and is increasingly active on social media. Not only the Chinese can be inspired there, but also tomorrow’s wealthy luxury fans from Generation Z. Luxury stocks have everything they need to enrich a broad portfolio. Our highly trained wealth experts will be happy to explain to you how and whether investors can continue to participate in this development. Because whether it is a buy at this level or a sell or hold is the question that only the experts can explain and we are happy about every new customer who uses our administrative expertise.
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by Dr. Markus C. Zschaber, founder of VMZ Vermögensverwaltungsgesellschaft in Cologne, www.zschaber.de
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