European Luxury Firms Rise After China Unveils New Stimulus Package

Shares of European luxury companies experienced an uptick on Tuesday following the announcement of several economic growth measures by Chinese officials.

The People’s Bank of China (PBOC) stated it would reduce reserve requirements for banks by 50 basis points, aiming to increase liquidity in the market. In a bid to support the struggling property sector, the government also revealed plans to cut mortgage rates for existing loans. Reports indicated that the government intends to provide at least 500 billion yuan (approximately $70.8 billion) in liquidity support for local stocks.

These actions follow the PBOC’s recent decision to lower a short-term repo rate to further enhance liquidity. Chinese officials are taking steps to bolster growth as the domestic economy faces ongoing disinflation and a protracted downturn in the property market.

Major luxury brands saw gains during midday trading in Europe. LVMH, Hermès, and Burberry all registered increases of over 4%, while Kering climbed more than 5%, and Christian Dior rose by 3.9%.

However, analysts have noted challenges for the luxury sector, including weak consumer demand in China, reduced spending by travelers, and an unpredictable U.S. economic outlook. A note from analysts at Jefferies mentioned expectations of “no appreciable improvement” in sales for high-end goods during the latter half of 2024, with demand remaining “flattish” in the first half.

Looking ahead, they predict that industry sales will fall 3% below recent consensus forecasts for 2025, attributing this to anticipated weakness in the Asia-Pacific region due to sluggish activity in China. This trend may counterbalance a projected recovery in the U.S. and Europe next year.

LVMH, a key player in the luxury market, reported slower than expected demand in the second quarter, noting a 14% decline in sales in Asia (excluding Japan), which encompasses China. Nevertheless, the company expressed optimism for the second half and is hopeful that more favorable comparisons will lead to a rebound in growth.