While stock markets are worried, luxury goods are expected to enjoy a prosperous 2021, thanks to a rebound in consumer spending, U.S. fiscal stimulus, and the rise of China’s middle class, according to GAM Investments.
In a note published this Wednesday, Swetha Ramachandran, head of equity investments in luxury brands at GAM Investments, said that, due to its strong presence in the Chinese market, the luxury sector was one of the first sectors impacted by the health crisis, before benefiting from a rebound linked to the recovery of Asian markets.
Many luxury goods players demonstrated their commitment during the health crisis, with French luxury giants such as LVMH, L’Oréal, and Pernod Ricard mobilizing their alcohol production units to manufacture hydroalcoholic gel.
In addition, the sector was able to renew itself and redirect its sales to digital technology. Luxury players have also favored a direct approach to consumers, especially the youngest ones, adds Swetha Ramachandran.
In this context, the Paris Stock Exchange showed a slight decline on Tuesday, also driven by the disastrous political situation in the United States. The CAC 40 closed the session with 5,650.97 points, down 0.2% to 3 billion euros in trading volume. Despite the Impeachment procedure launched by the Democratic representatives against President Donald Trump, concerns persist in the stock market.
Several analysts believe that, on the contrary, this impeachment procedure only serves to widen the gap between the two parties, so the outgoing president was ready to accept the transition with President-elect Joe Biden. However, Biden‘s presidency is still eagerly awaited by investors, who believe that it would ease trade tensions, thereby promoting global trade.
The London Stock Exchange ended the year down 0.5% on Tuesday, after a sharp rise at the beginning of the year. The FTSE-100 index of leading stocks fell 44.37 points to 6,754.11.
“After an impressive start to the year, equity markets are struggling to move higher this week,” said Russ Mould, an analyst at AJ Bell. “We’re in a period where investors are looking for clarity on what’s ahead“.
At the same time, the Dow Jones Industrial Average and the S&P 500 posted a slight rebound of +0.1% and +0.2% respectively. The Nasdaq Composite returned to 0.4%, after a 1.5% decline the day before, linked to criticism of the Facebook and Twitter platforms following the banning of Donald Trump. Concerning currencies, Bitcoin regained 2.28% to 34,962 dollars after falling -20% on Monday, while the euro recovered 0.13% to 1.2167 dollars.
The health situation, however, leaves the stock markets in doubt, especially the luxury sector. While some players in the fashion industry are showing satisfactory results, such as the classic Prada or the latest Farfetch, this is not the case in other luxury segments, such as Aston Martin, which is not performing as well as its competitor Ferrari.
“The sectors of the market that we have avoided are cruise lines, hotels, and gambling operators because they are clearly the ones that have been the most affected by the crisis,” explains Swetha Ramachandran. “With the launch of the vaccination campaigns, we are now starting to pay more attention, but we are focusing more on luxury hotels and duty-free store operators than on cruise lines and gambling companies“.
The management company thus anticipates that the various stimulus measures put in place will boost consumer spending and benefit the luxury sector. Swetha Ramachandran adds in her note that the development of a young and high-end emerging middle class in China is significantly boosting the sector.
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