Is The European Luxury Stock Rise Real Or A Mirage?
What Happened: The European luxury stocks of LVMH, Hermès, and Kering have risen “to record highs” during the global pandemic and have invited “comparisons with US technology behemoths,” according to Bloomberg. Meanwhile, Reuters also reported on these “bullish brokerage calls” and the impact luxury stocks were having on the STOXX Europe 600.
Unsurprisingly, some investors are bullish about these luxury stocks. “We view European luxury companies as the European stock market equivalent of US tech: businesses that are unrivaled in their global dominance,” said Giles Rothbarth, the manager of the Blackrock European Dynamic Fund, to Bloomberg.
Jing Take: The fast economic rebound in China has positively impacted consumption patterns, helping retail-focused companies overcome the ripple effect of the pandemic shutdown and slumps from the COVID-19 pandemic.
However, investors shouldn’t ignore global patterns. Luxury markets in most countries have been heavily impacted by COVID-19, and the crisis has caused “an unprecedented fall” in market size — down 23 percent from 2019, Bain & Company reported.
Stocks might trade higher, but we advise caution because once things return to normal, the Chinese appetite for luxury will ultimately slow down. Satisfying the pent-up demand for traveling, dining, and outdoor leisure activities will become the new priority.
Currently, international travel restrictions are keeping Chinese consumers in their home country. Thus, buying local luxury goods has become a relaxing pastime. However, travel will again be encouraged once vaccinations increase and the world reaches herd immunity.
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