Live Markets: Luxury benefitting from China stimulus, headwinds remain

Watches of Switzerland

26/09/2024 11:34

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    LUXURY BENEFITTING FROM CHINA STIMULUS, HEADWINDS REMAIN
    Luxury stocks are surging in Europe on Thursday on hopes that stimulus in China can reboot
demand for the ailing sector, but RBC believes challenges are likely to persist through the end
of the year with Q3 earnings reports on the horizon. 
    The STOXX Europe Luxury 10  .STXLUXP  is up over 4.5%, taking the weekly gain to over 8%,
its biggest one-week rise since January, but there are hurdles to overcome when reporting season
kicks off according to RBC.
    "The sector is facing more headwinds in 3Q24 such as lack of traffic in-store/online,
moderating travel trends into Europe and Japan (due to JPY appreciation) and China macro/micro
deterioration," RBC analysts write in a note.
    "Existing challenges including higher prices, spend rotation into experiences and
indigestion of over-consumption have not yet fully resolved either."
    Earnings expectations for FY2025 have been "significantly lowered" writes RBC, but they
still expect one more leg down ahead of FY2024 reporting as expectations remain "slightly
elevated".
    On a company basis, RBC prefers LVMH and Watches of Switzerland across luxury coverage,
while they expect a robust top-line performance for Pandora and EssilorLuxottica in Q3 results. 
    Europe's largest luxury goods company LVMH kicks off Q3 earnings for the sector when it
reports on October 8. 
    
    (Samuel Indyk)
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