Inflation affects the luxury sector on the Stock Market

The luxury sector presents a sharp fall in the Stock Market during 2022, pressured downward by inflation and a shortage of supplies that affected companies in the first months of the year.

The S&P Global Luxury Index has fallen 24.43% so far this year, going from 4,938.42 to 3,731.73 dollars.

This index is made up of 80 of the largest companies listed on the Stock Exchange that produce luxury goods. The nations that contribute the most companies to the indicator are the United States, France, Germany and Switzerland, among others.

Jacobo Rodríguez, director of analysis at Black Wallstreet Capital (BW Capital), explained that the sector was pressured by a shortage of supplies, as well as by inflation that has led consumers to reduce their discretionary spending.

“Faced with a complicated scenario, the first thing people stop spending is in the consumer discretionary sector and this clearly explains the significant drop in the sector,” explained Carlos González, director of economic and stock market analysis at Monex Casa de Bolsa .

Despite the drop of more than 24% in the index, Jacobo Rodríguez highlighted that the companies in the sector achieved a “lateral” behavior in the stock market, that is, they are currently at levels similar to those they had at the end of 2021.

This is the case of Louis Vuitton Malletier (LVMH), whose shares fall 5.56% in 2022, as well as that of Hermès International and Christian Dior, which present a drop of 4.79 and 6.05% in the year, respectively.

“At the beginning of 2022, (the shares of these companies) lost a lot, but they have recovered in the second half of the year, because the shortage problems have been solved,” said Jacobo Rodríguez.

Carlos González affirmed that when a sector has falls in the stock market, the shares of the largest companies tend to show a more defensive behavior or recover faster.

Negative outlook for the sector

Analysts pointed out that given the high probability of a recession next year, the outlook for the sector is not rosy.

“It seems to me that the outlook for 2023 continues to be the same or even more complex, precisely considering that it is very likely that there will be a recession in the United States,” said Carlos González. “In the end, it is a sector that is at the top of the pyramid and it is one of the sectors where people limit their spending the most.”

Jacobo Rodríguez said that his perspective of the sector is “neutral” because in case a recession materializes in the United States and other parts of the world, luxury companies “will clearly be affected”.

Four of the five largest listed luxury companies are from France. The Louis Vuitton Malletier (LVMH) house is the company in the sector with the largest market capitalization, with a market value of 367.130 million dollars at the close of this Tuesday.

This company, founded in 1854 in Paris, sells clothing and jewelry, watches, perfumes, cosmetics, wines and spirits, as well as other selective items.

Jacobo Rodríguez affirmed that the dominance of French companies in the luxury sector “has to do with the reputation” they have, since they have a tradition of several years, as is the case of LVMH, which was founded in the 19th century.

The second largest luxury company on the stock market is the fashion house Hermès International (also from France), which has a market value of 165.570 million dollars.

Hermès was founded in 1837 in the French capital. It sells articles of clothing, perfumes, shoes, jewelry, as well as decorative items. Hermès is followed by the French Christian Dior (131.780 million dollars) and EssilorLuxottica (81.340 million dollars), as well as the Swiss Compagnie Financière Richemont (74.480 million dollars).

The French bank, BNP Paribas, highlighted in a study that LVMH is with Inditex, the owner of Zara and Ryanair, the three European consumer values ​​that it likes by 2023.

The institution highlighted, according to Bolsamanía, that the purchasing power of Europeans will be resilient next year and will be above the growth of the Gross Domestic Product in 2023 and 2024. Household consumption will be supported by many “shock absorbers ” such as fiscal support from governments to offset price shocks in raw materials.

sebastian.diaz@eleconomista.mx