The fund manager reveals what needs to change to invest in luxury stocks

A drop in Chinese consumer confidence is preventing Hannah Gooch-Peters of Sanlam Investments from buying luxury stocks such as LVMH.

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

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

L’Oreal and LVMH shares are down around 20% and 10% respectively in the past 6 months as fears about the strength of the Chinese consumer weighed on the sector. Colleagues including Estee Lauder — who, according to Gooch-Peters, had also made mistakes in China — and the owner of Gucci Dry have also fallen significantly over the period.

LVMH’s fourth-quarter sales fell 3% compared to the same period a year earlier, while revenue in Asia excluding Japan fell 16%. The group’s chief financial officer said at the time that Chinese consumer confidence was at Covid-era lows.

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

First choice

However, one stock that the portfolio manager likes is CME Groupone of the largest derivatives markets in the world.

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

He added that he also likes the US-based company’s “cash flow (which) is very, very sustainable, very predictable,” adding that investors “don’t have to worry” about the cost of debt service. .

CME Group posts record revenue in October and start of year Chief executive Terry Duffy said he was confident his company was in a better position. than its rival, FMX.

Howard Lutnick, CEO of billionaire Cantor Fitzgerald: The election of the president-elect of the United States, Donald Trump, for secretary of Commerce – launched FMX in September under its BGC Group brokerage.

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

“What sets CME apart from its competitors is that it is primarily transaction-based, is a leader in interest rates and futures derivatives, and has the world’s largest liquidity pool in US Treasury futures, which is truly the reason why it has such high levels. barriers to entry,” he said.