Tired of the pandemic, investors prefer to console themselves with the fine and noble. This is how one could interpret the changing of the guard that took place on the Paris Stock Exchange last week: the third-heaviest value is no longer the pharmaceutical manufacturer Sanofi, who is working on a vaccine against Covid-19, but Hermès, the small but fine luxury goods manufacturer with just 14,000 employees. The company is now worth 111 billion euros with the legendary handbag models Jane Birkin and Kelly from the point of view of investors. The conquest campaign of luxury manufacturers has gained new momentum with the latest quarterly results.
Christian Schubert (chs.), Economy Follow I follow
Thanks to the good sales in Asia and North America, they have already largely left the crisis behind. The Internet business is also running more and more roundly, after the manufacturers had previously long clung to the physical shopping experiences in their brand temples. Quite a few customers are tempted by this to replace the expenses for a trip abroad with the purchase of a premium product. The three heaviest stocks on the Paris Stock Exchange are now luxury stocks for the first time: ahead of Hermès are LVMH, the number one in France and Europe with a market value of 321 billion euros, followed by the L’Oréal Group, which not only sells luxury brands but benefits from this wave with a market capitalisation of 192 billion euros. The manufacturer Kering, whose multi-brand strategy from Gucci to Saint Laurent resembles arch-rival LVMH, also comes to 82 billion euros and is in sixth place behind the three luxury leaders as well as Sanofi and Total.
Comparability is limited
However, quite a few shareholders no longer want to trust the gloss and glitter. The valuations of companies have reached new highs on many stock exchanges, considering the period since the Internet bubble burst a good two decades ago. This also applies to the French leading CAC40 index at its current level of around 6350 points. The younger participants in the stock exchange business were not yet employed when the index almost exceeded the limit of 7000 points in September 2000. In contrast to other stock exchanges such as the one in Frankfurt, the CAC40 has not yet surpassed the peak of that euphoric time. Comparability is limited because, unlike the Dax, the CAC40 includes non-reinvested dividend payments. But even in Paris, attention is now focused on the historical record at the beginning of the millennium. The index surpassed the intermediate high of 6168 points reached in July 2007 three weeks ago.
The analyses are divided between warnings of a bubble and rather reassuring indications of the fact that high phases on the stock market often take breaks. With the many central bank money in circulation, which has to go somewhere, some people lose their orientation. “You don’t even know how to determine the fundamental value of an asset,” complains economist Patrick Arthur of the French investment bank Natixis. He does not trust the luxury shares because they are now linked to monetary policy and not to their profit development. Another alarm signal among skeptical analysts is the rush to the spacs, the special Purpose Acquisition Companies, which collect investors ‘ money like a blank check to use it for later takeovers and IPOs.
Massive share buybacks
On the other hand, the stock of confidence highlights how the sales of luxury companies in Asia are increasing again: in the first quarter of 2021, Hermès reported an increase of 94 percent compared to the same period of the previous year, plus 86 percent for LVMH and plus 83 percent for Kering. In addition, beyond industry considerations, it should also be noted that the pandemic is at least stabilising in many of the world’s major economies, even if emerging economies such as India and Brazil cannot be included. The vaccination campaigns are progressing. As long as the results of the companies showed upward, the stock market is allowed to follow this quietly, it says. Massive share buybacks also contribute to optimism: the companies have soaked up liquidity and now want to share it with investors.
