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Declining consumer confidence in China is keeping Sanlam Investments’ Hannah Gooch-Peters from buying stocks such as LVMH.
Speaking to CNBC’s Silvia Amaro, the portfolio manager said she would need a “larger margin of safety” before investing in the world’s largest luxury goods group.
“A lot of these European companies were really getting their growth from the Chinese consumer, and so when we started seeing errors in execution … it was almost a perfect storm for Loreal and LVMH,” Gooch-Peters said, as the companies traded at “exceptionally high valuations for the growth they could offer.”
Shares in L’Oreal and LVMH have fallen about 20% and 10% respectively over the past 6 months as fears over the power of the Chinese consumer weighed on the sector. Peers included Estee Lauder – who, according to Gooch-Peters, also made mistakes in China – and the owner of Gucci To dry also fell significantly during this period.
LVMH’s fourth-quarter sales fell 3% year-on-year as revenue in Asia, excluding Japan, fell 16%. The group’s chief financial officer said at the time that Chinese consumer confidence was at its lowest level since the Covid era.
“What we want to see is just more confidence in the improvement from Chinese consumers,” Gooch-Peters said. “We’re going to need a bigger margin of safety so we can tap into that part of the market before we go there.”
The best choice
One stock the portfolio manager likes, however The CME Groupone of the world’s largest derivatives markets.
Sanlam Investments bought shares in the company last June, given its “very, very good operating margin” and “fantastic balance sheet”, Gooch Peters said.
She added that she also likes the “cash flow stream (which) of the US company is very, very stable, very predictable,” adding that investors “don’t have to worry” about the cost of servicing the debt.
CME Group posted record earnings in October and early in the year CEO Terry Duffy said he was confident his company was in a better position than its competitor, FMX.
Billionaire Cantor Fitzgerald CEO Howard Lutnick – US President-elect Donald Trump has been selected for the position of Secretary of Commerce — launched FMX in September under its broker 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 is primarily transaction-based and is the leader in interest rate and futures derivatives, and they have the largest liquidity pool in the world for US Treasury futures , and that is why it has such a high level. barriers to entry,” she said.
