Here’s why I’m buying LVMH, Hermes, Kering, Richemont stocks

Luxury group stocks have had a mixed performance in 2023 as concerns about the sector rose. While Hermes (RMS) stock price is hovering near its all-time high, others like LVMH, Kering, and Richemont are crawling back. LVMH stock was trading at €746, up from the November low of €650. It remains 16% below its highest point this year.

Kering stock, on the other hand, was trading at €427, 28% below the YTD high. Richemont, the parent company of Cartier, IWC, and Net-a-Porter, has jumped to CHF 124, still much lower than the YTD high of CHF 156.

LVMH vs Kering vs Richemont vs Hermes stocks

Crypto and stock price rally

The first reason I’m buying these stocks is that global stocks are doing modestly well. In New York, key indices like the Dow Jones, Nasdaq 100, and S&P 500 have entered a strong bull run. The tech-heavy Nasdaq 100 index is up by more than 40% this year while the small-cap Russel 2000 index has regained momentum. 

In Europe, the German DAX and French CAC 40 indices are hovering near their all-time highs. Elsewhere in Japan, the Nikkei 225 and Topix indices have jumped to their mult-decade highs.

Meanwhile, the crypto bull run is here with us. Bitcoin has surged to $43,000 while the total market cap of all coins has jumped to over $1.6 trillion. Other newer tokens like ORDI and Bonk have continued soaring. 

The implication of all this is that many people who have seen their portfolios grow this year will likely spend more on luxury goods. We saw this situation happen during the pandemic when these sales surged.

Central bank pivot

Further, key central banks have hit their pivot as they declare victory on inflation. In the United States, the Federal Reserve hinted that it will start cutting rates in 2024. It predicted about three rate cuts while analysts believe that these cuts will be more.

In Europe, the ECB, SNB, and Bank of England left rates unchanged and maintained a somewhat hawkish tone. Nonetheless, economists believe that they too will start pivoting in 2024. Goldman Sachs economists see the BoE delivering three to four rate cuts in 2024. In a note, ING said this about the ECB:

“We think that it would require a sharper economic downturn and/or inflation sustainably falling below 2% to see the central bank cutting rates by as much as the currently priced in 150bp.”

The actions of central banks have an automatic impact on luxury brands since it leads to more spending. Also, it is a sign that inflation is falling and nearing the central banks target. Luxury brands can, therefore, spend less in production while maintaining higher prices.

China growth is continuing

LVMH, Kering, Richemont, and Hermes have a common denominator in that China is their biggest market. In most cases, these companies tend to do well when the economy is thriving, which explains why they pulled back mid this year.

Now, there are signs that the economy is doing well. Data published on Friday revealed that the country’s industrial production and retail sales jumped sharply in November. Industrial production expanded by 6.6%, the fastest increase in two years.

Retail sales rose by 7.2%. These numbers mean that the Chinese economy is bottoming, which is a good thing for luxury groups.