LIVE MARKETS-Time for luxury to give up on China bounceback

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TIME FOR LUXURY TO GIVE UP ON CHINA BOUNCEBACK

Like cold fusion having been 20 years away for the past 30 years or so, HSBC luxury analysts say that for the past three years the message from their annual Asia trip is that conditions for luxury in China were touch, but "next year would be better".

Clearly that didn't happen, and now they say, the hope has gone too. "Meetings in Hong Kong, Xiamen and Shanghai provided no timeline or evidence of a recovery in Chinese luxury consumption," they write in a note.

HSBC say the softness is partly cyclical — "a weak macro environment, depressed property market, youth unemployment and concerns over AI’s impact on employment" — but also structural due to the emergence of local brands, and the growth of the second hand market.

That means, they say, the path to recovery in China won't be easy, though they are more optimistic about Korea.

They're not the only people out with a view on the luxury sector, not surprising as earnings season gets going.

Flavio Cereda, Investment Director, Luxury Brands, GAM, is not optimistic per se, he expects third quarter earnings to be weak, but he is a bit more hopeful about next year.

He reckons most of the valuation multiple compression has already taken place, and so a modest improvement in growth could dive a significant recovery in valuations, pointing particularly to LVMH.

Its shares hit their lowest in six years last week after reporting a fashion and leather goods sales miss partly a result of weak demand in China. LVMH.PA

It trades at around 16 times 12-month forward earnings, the lowest in around a decade.

(Alun John)

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