Declining Chinese consumer confidence is preventing Hannah Gooch Peters of Sanlam Investments from buying luxury stocks such as… LVMH.
Speaking to CNBC's Silvia Amaro, the portfolio manager said she would need a “larger margin of safety” before investing in the world's largest luxury group.
He added, “A lot of these European companies were deriving their growth from the Chinese consumer, so when we started to see errors in implementation…it was almost the perfect storm for us.” Loreal and LVMH,” Gooch-Peters said, as companies were trading at “exceptionally high valuations for the growth they had to deliver.”
Shares of L'Oreal and LVMH have fallen about 20% and 10%, respectively, over the past six months, as concerns about the strength of the Chinese consumer weigh on the sector. Their peers including Estee Lauder — which Gooch Peters said also made mistakes in China — and the owner of Gucci dry It decreased significantly during this period as well.
LVMH's fourth-quarter sales fell 3% from the same period a year earlier, as revenue in Asia, excluding Japan, fell 16%. The group's CFO said at the time that Chinese consumer confidence was at a Covid-era low.
“What we want to see is just more confidence in the improvement for the Chinese consumer,” Gooch-Peters said. “We will need a greater margin of safety to be able to participate in this part of the market, before we go there.”
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However, one stock that the portfolio manager loves is… cm groupone of the largest financial derivatives markets in the world.
Sanlam Investments bought shares in the company in June last year, due to its “very, very good operating margins” and “great balance sheet,” Gooch Peters said.
She also likes that the US-based company's “cash flow stream is very sustainable and very predictable,” she added, adding that investors “don't have to worry” about the cost of servicing debt.
CME Group posted record revenues in October and earlier in the year CEO Terry Duffy said he was confident his company was in a better position From its competitor FMX.
Billionaire Cantor Fitzgerald CEO Howard Lutnick – US President-elect Donald Trump's nominee for Secretary of Commerce – FMX was launched in September under the brokerage firm BGC Group.
Despite the launch, Gooch Peters believes the barriers to entry into the sector remain “very high”.
“The thing that sets the CME apart from its competitors is that it is primarily transaction-based, it is the leader in interest rate and derivatives futures, and it has the world's largest liquidity pool in U.S. Treasury futures, which is the real reason it is so high,” she said. : “Barriers to entry.”
