A fund manager reveals what he needs to change to invest in luxury stocks

Declining Chinese consumer confidence is keeping Hannah Gooch-Peters of Sanlam Investments from buying luxury stocks. LVMH.

Speaking to CNBC’s Silvia Amaro, the portfolio manager said he would need a “larger margin of safety” before investing in the world’s largest luxury group.

“A lot of these European companies were really getting their growth from the Chinese consumer, and so when we started seeing missteps in execution … it was almost a perfect storm. L’Oreal and LVMH,” Gooch-Peters said, as the companies were trading at “exceptionally high valuations for the growth they have to offer.”

Shares of L’Oreal and LVMH have fallen about 20% and 10% respectively in the past six months as fears about the strength of the Chinese consumer weigh on the sector. Including peers Estee Lauder – Gooch-Peters said he also made mistakes in China – and the owner of Gucci Dry decreased significantly during the period.

Fourth-quarter sales at LVMH fell 3% year-over-year, while revenue in Asia, excluding Japan, fell 16%. The group’s CFO said at the time that Chinese consumer confidence was at an all-time low during the Covid era.

“What we want to see is a little more confidence in the Chinese consumer getting better,” Gooch-Peters said. “We need a greater margin of safety to be able to enter that part of the market before we go there.”

The best choice

It is a stock that a portfolio manager likes CME Groupis one of the largest derivatives markets in the world.

Sanlam Investments bought the company’s shares in June last year, given its “very, very good operating margins” and “fantastic balance sheet”, Gooch Peters said.

He added that he likes the US-based company’s “cash flow stream (which is) very, very stable, very predictable”, adding that investors “don’t need to worry” about debt servicing costs.

CME Group posted record earnings in October and early in the year CEO Terry Duffy said he is confident his company is in better shape unlike its rival FMX.

Billionaire Cantor Fitzgerald CEO Howard Lutnick — The newly elected President of the United States, Donald Trump, has been chosen as the Secretary of Commerce — Launched FMX in September under brokerage BGC Group.

Despite the launch, Gootch-Peters believes the barriers to entry in the sector remain “extremely high”.

“What sets CME apart from its competitors is that it’s primarily transaction-based, and it’s a leader in interest rate and futures derivatives, and they have the largest pool of liquidity in the world in U.S. Treasury futures, which is why it’s so high. barriers to entry,” he said.